As filed with the Securities and Exchange Commission on June 30, 1998
1933 Act Registration No. 33-74628
1940 Act File No. 811-8322
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. __ [ ]
Post-Effective Amendment No. 11 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 12 [X]
--------------------
STATE STREET RESEARCH SECURITIES TRUST
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (617) 357-1200
Francis J. McNamara, III
Executive Vice President, Secretary & General Counsel
State Street Research & Management Company
One Financial Center
Boston, Massachusetts 02111
(Name and Address of Agent for Service)
Copies of Communications to:
Geoffrey R.T. Kenyon, Esq.
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] On _____________ pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] On September 1, 1999 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] On _____________ pursuant to paragraph (a)(2)
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
================================================================================
<PAGE>
This prospectus has information you should know before you invest. Please read
it carefully and keep it with your investment records. As with all mutual
funds, the Securities and Exchange Commission has not approved or disapproved
the securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
This prospectus will also be available in Spanish in October by calling the
State Street Research Service Center at 1-888-638-3193.
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[LOGO] STATE STREET RESEARCH
Strategic Income Fund
--------------------------------------------------
A bond fund investing
in a dynamic mix of
fixed-income securities.
Prospectus
September 1, 1999
<PAGE>
Contents
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1 The Fund
---------
1 Goal and Strategies
2 Principal Risks
6 Volatility and Performance
8 Investor Expenses
10 Investment Management
11 Your Investment
-----------------
11 Opening an Account
11 Choosing a Share Class
12 Sales Charges
15 Dealer Compensation
16 Buying and Selling Shares
20 Account Policies
22 Distributions and Taxes
23 Investor Services
24 Other Information
-------------------
24 Other Securities and Risks
26 Financial Highlights
28 Board of Trustees
Back Cover for Additional Information
<PAGE>
The Fund 1
---------------------------------------------------------
[GRAPHIC] Goal and Strategies
Fundamental Goal The fund seeks high current income consistent with overall
total return.
Principal Strategies Under normal market conditions, the fund uses an allocation
strategy, investing primarily in three major categories of fixed-income
securities: investment grade, lower quality and foreign securities. In pursuing
performance and diversifying risk, the investment manager allocates varying
percentages of the fund's portfolio among these three categories. While the fund
has wide flexibility in the relative weightings given to each category, it
intends to remain diversified across all three categories. The fund may invest
up to 60% of total assets in U.S. and foreign lower quality securities.
The fund's investment grade securities may include debt securities of the U.S.
Treasury as well as those of various U.S. government agencies. This category
also includes investment grade corporate securities, such as corporate bonds
(bonds that, at the time of purchase, are rated within or above the Standard &
Poor's BBB or the Moody's Baa major rating categories, or unrated but are
considered equivalent by the investment manager). The fund's lower quality
securities may include junk bonds, as well as lower quality convertible bonds
and preferred stocks. Lower
[GRAPHIC] Who May Want To Invest
State Street Research Strategic Income Fund is designed for investors who seek
one or more of the following:
o a fund to complement a portfolio of equity investments
o a fund with the potential to generate high current income and some capital
appreciation
o a highly diversified fixed-income fund
The fund is not appropriate for investors who:
o want to avoid even moderate volatility or possible losses
o are seeking to maximize either growth or income
o are making short-term investments
o are investing emergency reserve money
<PAGE>
2 The Fund continued
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quality securities are securities that, at the time of purchase, are below
investment grade. The fund's foreign securities tend to be bonds issued by
governments of developed countries. However, the fund also may invest in
government debt of less developed countries as well as foreign corporate debt of
any quality. Under certain conditions, the fund may use foreign currencies and
related instruments to hedge its foreign investments. In managing the fund's
portfolio, the investment manager monitors and adjusts the category allocations
from time to time, emphasizing those categories that the investment manager
anticipates will outperform the others.
By investing across different categories of fixed-income securities rather than
in just one, the fund diversifies the risks associated with investing in only
one category.
The fund reserves the right to invest up to 15% of total assets in other
investments, including common stocks. For more information about the fund's
investments and practices, see page 24.
[GRAPHIC] Principal Risks
Because the fund invests primarily in bonds and other debt securities, its major
risks are those of bond investing, including the tendency of prices to fall when
interest rates rise. There is also the risk that bond issuers may default on
principal or interest payments.
In pursuing its asset allocation strategy, there is the risk that the fund will
not correctly anticipate the relative performance of different bond categories
over specific periods. Failure to anticipate actual relative performance or
correctly allocate assets could cause periods of lackluster or negative fund
performance.
<PAGE>
3
------
To the extent that the fund focuses its assets in any given category or type of
security within a category, it assumes the risks associated with that category
or security.
Lower quality fixed-income securities generally are considered to be speculative
investments and involve greater risks than higher quality securities. The prices
of most lower quality securities are vulnerable to economic recessions, when it
becomes difficult for issuers to generate sufficient cash flow to pay principal
and interest. Many also are affected by weak equity markets, when issuers find
it hard to improve their financial condition by replacing debt with equity and
when investors, such as the fund, find it hard to sell their lower quality
securities at fair prices. In addition, the value of a lower quality security
will usually fall substantially if an issuer defaults or goes bankrupt. Even
anticipation of defaults by certain issuers, or the perception of economic or
financial weakness, may cause the market for lower quality securities to fall.
Foreign securities present risks beyond those of U.S. securities. They are
generally more volatile and less liquid than their U.S. counterparts, in part
because of higher political and economic risks, lack of reliable information and
fluctuations in currency exchange rates. Changes in currency exchange rates have
the potential to reduce or eliminate certain gains achieved in securities
markets or create net losses. These risks are usually higher for investments in
less developed markets.
In addition, many U.S. companies in which the fund may invest generate
significant revenues and earnings from abroad. As a result, these companies and
the prices of their securities may be affected by weaknesses in global and
regional economies and the relative value of foreign currencies to the U.S.
dollar. These factors, taken as a whole, could adversely affect the price of
fund shares.
One type of fixed-income security -- mortgage-related securities, which
represent interests in pools of mortgages -- may offer attractive yields but
generally carries additional risks. The
<PAGE>
4 The Fund continued
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prices and yields of mortgage-related securities typically assume that the
securities will be redeemed at a given time before maturity. When interest rates
fall substantially, these securities usually are redeemed early because the
underlying mortgages are often prepaid. The fund would then have to reinvest the
money at a lower rate. In addition, the price or yield of mortgage-related
securities may fall if they are redeemed later than expected.
In general, the risks associated with fixed-income investing are greater for
bonds with longer maturities.
Because of the fund's management approach, which may include short-term trading,
the fund's portfolio turnover rate may be above-average for a bond fund. High
turnover can increase the fund's transaction costs and may increase your tax
liability.
The fund's shares will rise and fall in value, and there is a risk that you
could lose money by investing in the fund. Also, the fund cannot be certain
that it will achieve its goal. Finally, fund shares are not bank deposits and
are not guaranteed, endorsed or insured by any financial institution, government
entity or the FDIC.
Information on other securities and risks appears on page 24.
A "snapshot" of the fund's investments may be found in the current annual or
semiannual report (see back cover).
<PAGE>
5
------
[GRAPHIC] Investing in Categories
of Fixed-Income
Securities
Not all fixed-income securities behave similarly under the same economic
conditions. In recent years, for example, three fixed-income categories --
investment grade, lower quality and foreign -- have tended to complement each
other rather than moving in lock-step with the others.
For example, when U.S. interest rates have risen or fallen, the prices of U.S.
government securities and investment grade corporate bonds have tended to be
more volatile than those of junk bonds. Junk bonds, however, have tended to be
more sensitive to changes in the U.S. economy than investment grade securities.
With foreign securities, additional factors have come into play. For example,
foreign interest rates generally have not moved in tandem with U.S. interest
rates. In addition, the U.S. dollar value of many foreign securities has been
affected by fluctuations in exchange rates. These interest and exchange rates
generally have been sensitive to foreign economic cycles, which often have been
different than those of the U.S. economy.
Knowing precisely when one category of fixed-income securities will outperform
the others is difficult. As a result, many fixed-income investors find it
prudent to diversify their assets across categories. One advantage of a fund
such as this one is that, in addition to having an investment professional
select individual securities for the portfolio, the professional also determines
the allocation percentages for each category.
<PAGE>
6 Volatility and Performance
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[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL]
Years ended December 31
-----------------------
Year-by-Year Total Return (Class A) 1997 1998
================================================================================
Best quarter: second quarter 1997, up 4.85% 10.65
Worst quarter: third quarter 1998, down 1.36% 4.30
Return from 1/1/99 - 6/30/99 (not annualized): down 0.54%
As of December 31, 1998
-----------------------------
Average Annual Total Return 1 Year Since Inception*
================================================================================
Class A (%) (0.40) 6.60
Class B(1)(a) (%) (1.36) 6.66
Class B (%) (1.36) 6.66
Class C (%) 2.44 7.81
Class S (%) 4.41 8.99
Lehman Brothers Aggregate Bond Index (%) 8.69 9.97
Lipper Multi-Sector Income Funds Index (%) 1.12 6.56
*Since inception (8/30/96)
(a) Performance for Class B(1) reflects Class B performance through December 31,
1998. Class B(1) was introduced on January 1, 1999.
<PAGE>
7
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[GRAPHIC] Understanding
Volatility and
Performance
The chart and table on the opposite page are designed to show two aspects of the
fund's track record:
o Year-by-Year Total Return shows how volatile the fund has been: how much
the difference has been, historically, between its best years and worst
years (of course, the chart is less meaningful for a newer fund such as
this one). In general, funds with higher average annual total returns will
also have higher volatility. The graph includes the effects of fund
expenses, but not sales charges. If sales charges had been included,
returns would have been less than shown.
o Average Annual Total Return is a measure of the fund's performance over
time. It is determined by taking the fund's performance over a given period
and expressing it as an average annual rate.
Average annual total return includes the effects of fund expenses and maximum
sales charges for each class, and assumes that you sold your shares at the end
of the period.
Also included with the fund's average annual returns are two independent
measures of performance. The Lehman Brothers Aggregate Bond Index includes
fixed-rate debt issues rated investment grade or higher. The Lipper Multi-Sector
Income Funds Index shows the performance of a category of mutual funds with
similar goals. This index, which is also unmanaged, shows you how well the fund
has done compared to competing funds.
While the fund does not seek to match the returns or the volatility of any
index, these indices can be used as rough guides when gauging the return of this
and other investments. When making comparisons, keep in mind that neither the
Lehman index nor the Lipper index includes the effects of sales charges. Also,
even if your portfolio were identical to the Lehman index, your returns would
always be lower, because the index does not include transaction and
administrative expenses.
Keep in mind that past performance is no guarantee of future results.
<PAGE>
8 Investor Expenses
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<TABLE>
<CAPTION>
Class descriptions begin on page 11
--------------------------------------------------------------
Shareholder Fees (% of offering price) Class A Class B(1) Class B Class C Class S
===============================================================================================================================
<S> <C> <C> <C> <C> <C>
Maximum front-end sales charge (load) 4.50 0.00 0.00 0.00 0.00
Maximum deferred sales charge (load) 0.00(a) 5.00 5.00 1.00 0.00
<CAPTION>
Annual Fund Operating Expenses (% of average net assets) Class A Class B(1) Class B Class C Class S
===============================================================================================================================
<S> <C> <C> <C> <C> <C>
Management fee 0.75 0.75 0.75 0.75 0.75
Distribution/service (12b-1) fees 0.25 1.00 1.00 1.00 0.00
Other expenses 0.45 0.45 0.45 0.45 0.45
---- ---- ---- ---- ----
Total annual fund operating expenses 1.45 2.20 2.20 2.20 1.20
==== ==== ==== ==== ====
Because some of the fund's expenses have been
reduced through expense offset arrangements,
actual total operating expenses for the prior
year would have been: 1.44 2.19 2.19 2.19 1.19
<CAPTION>
Example Year Class A Class B(1) Class B Class C Class S
===============================================================================================================================
<S> <C> <C> <C> <C> <C>
1 $591 $723/$223 $723/$223 $323/$223 $122
3 $888 $988/$688 $988/$688 $688 $381
5 $1,207 $1,380/$1,180 $1,380/$1,180 $1,180 $660
10 $2,107 $2,344 $2,344 $2,534 $1,455
</TABLE>
(a) Except for investments of $1 million or more; see page 12.
<PAGE>
9
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[GRAPHIC] Understanding
Investor Expenses
The information on the opposite page is designed to give you an idea of what you
should expect to pay in expenses as an investor in the fund:
o Shareholder Fees are costs that are charged to you directly. These fees are
not charged on reinvestments or exchanges.
o Annual Fund Operating Expenses are deducted from the fund's assets every
year, and are thus paid indirectly by all fund investors.
o The Example is designed to allow you to compare the costs of this fund with
those of other funds. It assumes that you invested $10,000 over the years
indicated, reinvested all distributions, earned a hypothetical 5% annual
return and paid the maximum applicable sales charges. For Class B(1) and
Class B shares, it also assumes the automatic conversion to Class A after
eight years.
Where two numbers are shown separated by a slash, the first one assumes you
sold all your shares at the end of the period, while the second assumes you
stayed in the fund. Where there is only one number, the costs would be the
same either way.
Investors should keep in mind that the example is for comparison purposes
only. The fund's actual performance and expenses may be higher or lower.
<PAGE>
10 The Fund continued
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[GRAPHIC] Investment Management
The fund's investment manager is State Street Research & Management Company, One
Financial Center, Boston, MA 02111. The firm traces its heritage back to 1924
and the founding of one of America's first mutual funds. Today the firm has more
than $53 billion in assets under management (as of July 31, 1999), including
more than $17 billion in mutual funds.
The investment manager is responsible for the fund's investment and business
activities, and receives the management fee (0.75% of average net assets,
annually) as compensation. The investment manager is a subsidiary of
Metropolitan Life Insurance Company.
John H. Kallis has been responsible for the fund's day-to-day portfolio
management since its inception in August 1996. A senior vice president, he
joined the firm in 1987 and has worked as an investment professional since 1963.
Supporting Mr. Kallis are Bartlett R. Geer, who manages the lower quality
portion of the fund, and Elizabeth M. Westvold, who manages the fund's foreign
securities. Mr. Geer is a senior vice president and has worked as an investment
professional since joining the firm in 1981. He has assisted with the fund since
June 1999, and previously from the fund's inception through December 1998. Also
a senior vice president, Ms. Westvold has worked as an investment professional
for 15 years. She has assisted with the fund since its inception.
<PAGE>
Your Investment 11
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[GRAPHIC] Opening an Account
If you are opening an account through a financial professional, he or she can
assist you with all phases of your investment.
If you are investing through a large retirement plan or other special program,
follow the instructions in your program materials.
To open an account without the help of a financial professional, please use the
instructions on these pages.
[GRAPHIC] Choosing a Share Class
The fund generally offers four share classes, each with its own sales charge and
expense structure: Class A, Class B(1), Class C and Class S. The fund also
offers Class B shares, but only to current Class B shareholders through
reinvestment of dividends and distributions or through exchanges from existing
Class B accounts of other State Street Research Funds.
If you are investing a substantial amount and plan to hold your shares for a
long period, Class A shares may make the most sense for you. If you are
investing a lesser amount, you may want to consider Class B(1) shares (if
investing for at least six years) or Class C shares (if investing for less than
six years). If you are investing through a special program, such as a large
employer-sponsored retirement plan or certain programs available through
brokers, you may be eligible to purchase Class S shares.
Because all future investments in your account will be made in the share class
you designate when opening the account, you should make your decision carefully.
Your financial professional can help you choose the share class that makes the
most sense for you.
<PAGE>
12 Your Investment continued
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Class A -- Front Load
o Initial sales charge of 4.5% or less
o Lower sales charges for larger investments; see sales charge schedule at
the right
o Lower annual expenses than Class B(1) or Class C shares because of lower
distribution/ service (12b-1) fee of 0.25%
Class B(1) -- Back Load
o No initial sales charge
o Deferred sales charge of 5% or less on shares you sell within six years
o Annual distribution/service (12b-1) fee of 1.00%
o Automatic conversion to Class A shares after eight years, reducing future
annual expenses
Class B -- Back Load
o Available only to current shareholders. See page 13 for details
Class C -- Level Load
o No initial sales charge
o Deferred sales charge of 1%, paid if you sell shares within one year of
purchase
o Lower deferred sales charge than Class B(1) shares
o Annual distribution/service (12b-1) fee of 1.00%
o No conversion to Class A shares after eight years, so annual expenses do
not decrease
Class S -- Special Programs
o Available only through certain retirement accounts, advisory accounts of
the investment manager and other special programs, including broker
programs through financial professionals with recordkeeping and other
services; these programs usually involve special conditions and separate
fees (consult your financial professional or your program materials)
o No sales charges of any kind
o No distribution/service (12b-1) fees; annual expenses are lower than other
share classes
Sales Charges
Class A -- Front Load
when you invest this % is which equals
this amount deducted this % of
for sales your net
charges investment
================================================================================
Up to $100,000 4.50 4.71
$100,000 to $250,000 3.50 3.63
$250,000 to $500,000 2.50 2.56
$500,000 to $1 million 2.00 2.04
$1 million or more see below
With Class A shares, you pay a sales charge when you buy shares.
If you are investing $1 million or more (either as a lump sum or through any of
the methods described on the application), you can purchase Class A shares
without any sales charge. However, you may be charged a "contingent deferred
sales charge" (CDSC) of up to 1% if you sell any shares within one year of
purchasing them. See "Other CDSC Policies" on page 14.
<PAGE>
13
-----
Class A shares are also offered with low or no sales charges through various
wrap-fee programs and other sponsored arrangements (consult your financial
professional or your program materials).
Class B(1) -- Back Load
this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deducted
bought them from your proceeds
================================================================================
First year 5.00
Second year 4.00
Third year 3.00
Fourth year 3.00
Fifth year 2.00
Sixth year 1.00
Seventh or Eighth year None
With Class B(1) shares, you pay no sales charge when you invest, but you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for six years or less, as described in the table above. See "Other
CDSC Policies" on page 14.
Class B(1) shares automatically convert to Class A shares after eight years;
Class A shares have lower annual expenses.
Class B-- Back Load
Class B shares are available only to current shareholders through reinvestment
of dividends and distributions or through exchanges from existing Class B
accounts of the State Street Research funds. Other investments made by current
Class B shareholders will be in Class B(1) shares. With Class B shares, you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for five years or less. The CDSC is a percentage of net asset value at
the time of purchase (or of sale, if lower) and is deducted from your proceeds.
When you sell shares in the first year after you bought them, the CDSC is 5.00%;
second year, 4.00%; third year, 3.00%; fourth year, 3.00%; fifth year, 2.00%;
sixth year or later, none. See "Other CDSC Policies" on page 14.
Class B shares automatically convert to Class A shares after eight years.
Class C -- Level Load
this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deducted
bought them from your proceeds
================================================================================
First year 1.00
Second year or later None
With Class C shares, you pay no sales charge when you invest, but you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for one year or less, as described in the table above. See "Other CDSC
Policies" on page 14.
<PAGE>
14 Your Investment continued
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Class C shares currently have the same annual expenses as Class B(1) shares, but
never convert to Class A shares (with their lower annual expenses).
Class S -- Special Programs
Class S shares have no sales charges.
Other CDSC Policies
The CDSC will be based on the net asset value of the shares at the time of
purchase (or sale, if lower). Any shares acquired through reinvestment are not
subject to the CDSC. There is no CDSC on exchanges into other State Street
Research funds, and the date of your initial investment will continue to be used
as the basis for CDSC calculations when you exchange. To ensure that you pay the
lowest CDSC possible, the fund will always use the shares with the lowest CDSC
to fill your sell requests.
The CDSC is waived on shares sold for participant initiated distributions from
State Street Research prototype retirement plans. In other cases, the CDSC is
waived on shares sold for mandatory retirement distributions or for
distributions because of disability or death. Consult your financial
professional or the State Street Research Service Center for more
information.
[GRAPHIC] Understanding
Distribution/Service
Fees
As noted in the descriptions on pages 12 to 14, all share classes except Class S
have an annual distribution/service fee, also called a 12b-1 fee.
Under its current 12b-1 plan, the fund may pay certain distribution and service
fees for these classes out of fund assets. Because 12b-1 fees are an ongoing
expense, they will increase the cost of your investment and, over time, could
potentially cost you more than if you had paid other types of sales charges. For
that reason, you should consider the effects of 12b-1 fees as well as sales
loads when choosing a share class.
Some of the 12b-1 fee is used to compensate those financial professionals who
sell fund shares and provide ongoing service to shareholders. The table on page
15 shows how these professionals' compensation is calculated.
The fund may continue to pay 12b-1 fees even if the fund is subsequently closed
to new investors.
<PAGE>
15
-----
[GRAPHIC] Dealer Compensation
Financial professionals who sell shares of State Street Research funds and
perform services for fund investors may receive sales commissions, annual fees
and other compensation. These are paid by the fund's distributor, using money
from sales charges, distribution/service (12b-1) fees and its other resources.
Brokers and Agents may change a transaction fee on the purchase or sale of
shares by shareholders. The distributor may pay its affiliate MetLife
Securities, Inc. additional compensation of up to 0.25% of certain sales or
assets.
Dealer Commissions (%) Class A Class B(1) Class B Class C Class S
================================================================================
Initial commission -- 4.00 4.00 1.00 0.00
Investments up to $100,000 4.00 -- -- -- --
$100,000 to $250,000 3.00 -- -- -- --
$250,000 to $500,000 2.00 -- -- -- --
$500,000 to $1 million 1.75 -- -- -- --
First $1-3 million 1.00(a) -- -- -- --
Next $2 million 0.75(a) -- -- -- --
Next $2 million 0.50(a) -- -- -- --
Next $1 and above 0.25(a) -- -- -- --
Annual fee 0.25 0.25 0.25 0.90 0.00
(a) If your financial professional declines this commission, the one-year CDSC
on your investment is waived.
Brokers for Portfolio Trades
When placing trades for the fund's portfolio, State Street Research chooses
brokers that provide the best execution (a term defined by service as well as
price), but may also consider a broker's sales of fund shares.
<PAGE>
16 Buying and Selling Shares
- --------------------------------------------------------------------------------
[GRAPHIC] Policies for
Buying Shares
Once you have chosen a share class, the next step is to determine the amount you
want to invest.
Minimum Initial Investments:
o $1,000 for accounts that use the Investamatic program(a)
o $2,000 for Individual Retirement Accounts(a)
o $2,500 for all other accounts
Minimum Additional Investments:
o $50 for any account
Complete the enclosed application. You can avoid future inconvenience by
signing up now for any services you might later use.
Timing of Requests All requests received in good order by State Street Research
before the close of regular trading on the New York Stock Exchange (usually 4:00
p.m. eastern time) will be executed the same day, at that day's closing share
price. Orders received thereafter will be executed the following day, at that
day's closing share price.
Wire Transactions Funds may be wired between 8:00 a.m. and 4:00 p.m. eastern
time. To make a same-day wire investment, please notify State Street Research by
12:00 noon of your intention to wire funds, and make sure your wire arrives by
4:00 p.m. If the New York Stock Exchange closes before 4:00 p.m. eastern time,
you may be unable to make a same-day wire investment. Your bank may charge a fee
for wiring money.
(a) Except for $500 during special promotional periods; contact your financial
professional
<PAGE>
Instructions for Buying Shares 17
- --------------------------------------------------------------------------------
[GRAPHIC] Through a
Professional
or Program
By Mail [GRAPHIC]
[GRAPHIC] By Federal
Funds Wire
By Electronic [GRAPHIC]
Funds Transfer
(ACH)
[GRAPHIC] By Investamatic
By Exchange [GRAPHIC]
To Open an Account
Consult your financial professional or your program materials.
Make your check payable to "State Street Research Funds." Forward the check and
your application to State Street Research.
Call to obtain an account number and forward your application to State Street
Research. Wire funds using the instructions at right.
Verify that your bank is a member of the ACH (Automated Clearing House) system.
Forward your application to State Street Research. Please be sure to include the
appropriate bank information. Call State Street Research to request a purchase.
Forward your application, with all appropriate sections completed, to State
Street Research, along with a check for your initial investment payable to
"State Street Research Funds."
Call State Street Research or visit our Web site.
To Add to an Account
Consult your financial professional or your program materials.
Fill out an investment slip or indicate the fund name and account number on your
check. Make your check payable to "State Street Research Funds." Forward the
check and slip to State Street Research.
Call State Street Research to obtain a control number. Instruct your bank to
wire funds to:
o State Street Bank and Trust Company, Boston, MA
o ABA: 011000028
o BNF: fund name and share class you want to buy
o AC: 99029761
o OBI: your name and your account number
o Control: the number given to you by State Street Research
Call State Street Research to verify that the necessary bank information is on
file for your account. If it is, you may request a transfer with the same phone
call. If not, please ask State Street Research to provide you with an EZ Trader
application.
Call State Street Research to verify that Investamatic is in place on your
account, or to request a form to add it. Investments are automatic once
Investamatic is in place.
Call State Street Research or visit our Web site.
State Street Research Service Center PO Box 8408, Boston, MA 02266-8408
Internet www.ssrfunds.com
Call toll-free: 1-800-562-0032 (business days 8:00 a.m. - 6:00 p.m., eastern
time)
<PAGE>
18 Your Investment continued
- --------------------------------------------------------------------------------
[GRAPHIC] Policies for
Selling Shares
Circumstances that Require Written Requests Please submit instructions in
writing when any of the following apply:
o you are selling more than $100,000 worth of shares
o the name or address on the account has changed within the last 30 days
o you want the proceeds to go to a name or address not on the account
registration
o you are transferring shares to an account with a different registration or
share class
o you are selling shares held in a corporate or fiduciary account; for these
accounts, additional documents are required:
corporate accounts: certified copy of a corporate resolution
fiduciary accounts: copy of power of attorney or other governing document
To protect your account against fraud, all signatures on these documents must be
guaranteed. You may obtain a signature guarantee at most banks and securities
dealers. A notary public cannot provide a signature guarantee.
Incomplete Sell Requests State Street Research will attempt to notify you
promptly if any information necessary to process your request is missing.
Timing of Requests All requests received in good order by State Street Research
before the close of regular trading on the New York Stock Exchange (usually 4:00
p.m. eastern time) will be executed the same day, at that day's closing share
price. Requests received thereafter will be executed the following day, at that
day's closing share price.
Wire Transactions Proceeds sent by federal funds wire must total at least
$5,000. A fee of $7.50 will be deducted from all proceeds sent by wire, and your
bank may charge an additional fee to receive wired funds.
Selling Recently Purchased Shares If you sell shares before the check or
electronic funds transfer (ACH) for those shares has been collected, you will
not receive the proceeds until your initial payment has cleared. This may take
up to 15 days after your purchase was recorded (in rare cases, longer). If you
open an account with shares purchased by wire, you cannot sell those shares
until your application has been processed.
<PAGE>
Instructions for Selling Shares 19
- --------------------------------------------------------------------------------
[GRAPHIC] Through a
Professional or
Program
By Mail [GRAPHIC]
[GRAPHIC] By Federal
Funds Wire
By Electronic [GRAPHIC]
Funds Transfer
(ACH)
[GRAPHIC] By Telephone
By Exchange [GRAPHIC]
[GRAPHIC] By Systematic
Withdrawal Plan
By Check [GRAPHIC]
Consult your financial professional or your program materials.
Send a letter of instruction, an endorsed stock power or share certificates (if
you hold certificate shares) to State Street Research. Specify the fund, the
account number and the dollar value or number of shares. Be sure to include all
necessary signatures and any additional documents, as well as signature
guarantees if required (see facing page).
Check with State Street Research to make sure that a wire redemption privilege,
including a bank designation, is in place on your account. Once this is
established, you may place your request to sell shares with State Street
Research. Proceeds will be wired to your pre-designated bank account. (See "Wire
Transactions" on facing page.)
Check with State Street Research to make sure that the EZ Trader feature,
including a bank designation, is in place on your account. Once this is
established, you may place your request to sell shares with State Street
Research. Proceeds will be sent to your pre-designated bank account.
As long as the transaction does not require a written request (see facing page),
you or your financial professional can sell shares by calling State Street
Research. A check will be mailed to your address of record on the following
business day.
Read the prospectus for the fund into which you are exchanging. Call State
Street Research or visit our Web site.
See plan information on page 23.
The checkwriting privilege is available for Class A shares only. If you have
requested this privilege on your application, you may write checks for amounts
from $500 to $100,000.
State Street Research Service Center PO Box 8408, Boston, MA 02266-8408
Internet www.ssrfunds.com
Call toll-free: 1-800-562-0032 (business days 8:00 a.m. - 6:00 p.m., eastern
time)
<PAGE>
20 Your Investment continued
- --------------------------------------------------------------------------------
[GRAPHIC] Account Policies
Telephone Requests When you open an account you automatically receive telephone
privileges, allowing you to place requests for your account by telephone. Your
financial professional can also use these privileges to request exchanges on
your account and, with your written permission, redemptions. For your
protection, all telephone calls are recorded.
As long as State Street Research takes certain measures to authenticate
telephone requests on your account, you may be held responsible for unauthorized
requests. Unauthorized telephone requests are rare, but if you want to protect
yourself completely, you can decline the telephone privilege on your
application. The fund may suspend or eliminate the telephone privilege at any
time.
Exchange Privileges There is no fee to exchange shares among State Street
Research funds. Your new fund shares will be the equivalent class of your
current shares. Any contingent deferred sales charges will continue to be
calculated from the date of your initial investment.
You must hold Class A shares of any fund for at least 30 days before you may
exchange them at net asset value for Class A shares of a different fund with a
higher applicable sales charge.
Frequent exchanges can interfere with fund management and drive up costs for all
shareholders. Because of this, the fund currently limits each account, or group
of accounts under common ownership or control, to six exchanges per calendar
year. The fund may change or eliminate the exchange privilege at any time, may
limit or cancel any shareholder's exchange privilege and may refuse to accept
any exchange request, particularly those associated with "market timing"
strategies.
For Merrill Lynch customers, exchange privileges extend to Summit Cash Reserves
Fund, which is related to the fund for purposes of investment and investor
services.
Accounts with Low Balances If the value of your account falls below $1,500,
State Street Research may mail you a notice asking you to bring the account back
up to $1,500 or close it out. If you do not take action within 60 days, State
Street Research may either sell your shares and mail the proceeds to you at the
address of record or, depending on the circumstances, may deduct an annual
maintenance fee (currently $18).
<PAGE>
21
-----
The Fund's Business Hours The fund is open the same days as the New York Stock
Exchange (generally Monday through Friday). Fund representatives are available
from 8:00 a.m. to 6:00 p.m. eastern time on these days.
Calculating Share Price The fund calculates its net asset value per share (NAV)
every business day at the close of regular trading on the New York Stock
Exchange (but not later than 4:00 p.m. eastern time). NAV is calculated by
dividing the fund's net assets by the number of existing shares.
In calculating its NAV, the fund uses the last reported sale price or quotation
for portfolio securities. However, in cases where these are unavailable, or when
the investment manager believes that subsequent events have rendered them
unreliable, the fund may use fair-value estimates instead.
Because foreign securities markets are sometimes open on different days from
U.S. markets, there may be instances when the value of the fund's portfolio
changes on days when you cannot buy or sell fund shares.
Reinstating Recently Sold Shares For 120 days after you sell shares, you have
the right to "reinstate" your investment by putting some or all of the proceeds
into any currently available State Street Research fund at net asset value. Any
CDSC you paid on the amount you are reinstating will be credited to your
account. You may only use this privilege once in any twelve-month period with
respect to your shares of a given fund.
Additional Policies Please note that the fund maintains additional policies and
reserves certain rights, including:
o Requirements for initial or additional investments, reinvestments, periodic
investment plans, retirement and employee benefit plans, sponsored
arrangements and other similar programs, may be changed from time to time
-- without further notice or supplement to this prospectus.
o All orders to purchase shares are subject to acceptance by the fund
o At any time, the fund may change or discontinue its sales charge waivers
and any of its order acceptance practices, and may suspend the sale of its
shares
o The fund may delay sending you redemption proceeds for up to seven days, or
longer if permitted by the SEC
o To permit investors to obtain the current price, dealers are responsible
for transmitting all orders to the State Street Research Service Center
promptly
<PAGE>
22 Your Investment continued
- --------------------------------------------------------------------------------
[GRAPHIC] Tax Considerations
Unless your investment is in a tax-deferred account, you may want to avoid:
o investing a large amount in the fund close to the end of the fiscal year or
a calendar year (if the fund makes a capital gains distribution, you will
receive some of your investment back as a taxable distribution)
o selling shares at a loss for tax purposes and investing in a substantially
identical investment within 30 days before or after such sale (such a
transaction is usually considered a "wash sale," and you will not be
allowed to claim a tax loss)
[GRAPHIC] Distributions and Taxes
Income and Capital Gains Distributions The fund distributes its net income and
net capital gains to shareholders. Using projections of its future income, the
fund declares dividends daily and pays them monthly. Net capital gains, if any,
are distributed around the end of the fund's fiscal year, which is April 30. To
comply with tax regulations, the fund may also pay an additional capital gains
distribution in December.
You may have your distributions reinvested in the fund, invested in a different
State Street Research fund, deposited in a bank account or mailed out by check.
If you do not give State Street Research other instructions, your distributions
will automatically be reinvested in the fund.
Tax Effects of Distributions and Transactions In general, any dividends and
short-term capital gains distributions you receive from the fund are taxable as
ordinary income. Distributions of long-term capital gains are generally taxable
as capital gains -- in most cases, at a different ratefrom that which applies to
ordinary income.
The tax you pay on a given capital gains distribution generally depends on how
long the fund has held the portfolio securities it sold. It does not depend on
how long you have owned your fund shares or whether you reinvest your
distributions.
Every year, the fund will send you information detailing the amount of ordinary
income and capital gains distributed to you for the previous year.
<PAGE>
23
-----
The sale of shares in your account may produce a gain or loss, and is a taxable
event. For tax purposes, an exchange is the same as a sale.
Your investment in the fund could have additional tax consequences. Please
consult your tax professional for assistance.
Backup Withholding By law, the fund must withhold 31% of your distributions and
proceeds if you have not provided complete, correct taxpayer information.
[GRAPHIC] Investor Services
Investamatic Program Use Investamatic to set up regular automatic investments in
the fund from your bank account. You determine the frequency and amount of your
investments.
Systematic Withdrawal Plan This plan is designed for retirees and other
investors who want regular withdrawals from a fund account. The plan is free and
allows you to withdraw up to 12% of your fund assets a year (minimum $50 per
withdrawal) without incurring any contingent deferred sales charges. Certain
terms and minimums apply.
EZTrader This service allows you to purchase or sell fund shares over the
telephone through the ACH (Automated Clearing House) system.
Dividend Allocation Plan This plan automatically invests your distributions from
the fund into another fund of your choice, without any fees or sales charges.
Automatic Bank Connection This plan lets you route any distributions or
Systematic Withdrawal Plan payments directly to your bank account.
Retirement Plans State Street Research also offers a full range of prototype
retirement plans for individuals, sole proprietors, partnerships, corporations
and employees.
Call 1-800-562-0032 for information on any of the services described above.
<PAGE>
24 Other Information
- --------------------------------------------------------------------------------
[GRAPHIC] Other Securities
and Risks
Each of the fund's portfolio securities and investment practices offers certain
opportunities and carries various risks. Major investments and risk factors are
outlined in the fund description starting on page 1. Below are brief
descriptions of other securities and practices, along with their associated
risks.
Restricted and Illiquid Securities Any securities that are thinly traded or
whose resale is restricted can be difficult to sell at a desired time and price.
Some of these securities are new and complex, and trade only among institutions;
the markets for these securities are still developing, and may not function as
efficiently as established markets. Owning a large percentage of restricted and
illiquid securities could hamper the fund's ability to raise cash to meet
redemptions. Also, because there may not be an established market price for
these securities, the fund may have to estimate their value, which means that
their valuation -- and the valuation of the fund -- may have a subjective
element.
Securities Ratings When securities are rated by one or more independent rating
agencies, the fund uses these ratings to determine credit quality. In cases
where a security is rated in conflicting categories by different rating
agencies, the fund may choose to follow the higher rating. Where a security is
only rated by one agency, the fund may invest based on a higher rating derived
from its own analysis. If a rating agency downgrades a security, the fund will
determine whether to hold or sell the security.
Derivatives Derivatives, a category that includes options and futures, are
financial instruments whose value derives from another security, an index or a
currency. The fund may use derivatives for hedging (attempting to offset a
potential loss in one position by establishing an interest in an opposite
position). This includes the use of currency-based derivatives for hedging its
positions in foreign securities. The fund may also use derivatives for
speculation (investing for potential income or capital gain).
While hedging can guard against potential risks, it adds to the fund's expenses
and can eliminate some opportunities for gains. There is also a risk that a
derivative intended as a hedge may not perform as expected.
The main risk with derivatives is that some types can amplify a gain or loss,
<PAGE>
25
-----
potentially earning or losing substantially more money than the actual cost of
the derivative.
With some derivatives, whether used for hedging or speculation, there is also
the risk that the counterparty may fail to honor its contract terms, causing a
loss for the fund.
Securities Lending The fund may seek additional income by lending portfolio
securities to qualified institutions. By reinvesting any cash collateral it
receives in these transactions, the fund could realize additional gains or
losses. If the borrower fails to return the securities and the invested
collateral has declined in value, the fund could lose money.
When-issued Securities The fund may invest in securities prior to their date of
issue. These securities could fall in value by the time they are actually
issued, which may be any time from a few days to over a year.
Zero (or Step) Coupons A zero coupon security is a debt security that is
purchased and traded at discount to its face value because it pays no interest
for some or all of its life. Interest, however, is reported as income to the
fund and the fund is required to distribute to shareholders an amount equal to
the amount reported. Those distributions may force the fund to liquidate
portfolio securities at a disadvantageous time.
Asset-backed Securities Asset-backed securities represent interests in pools of
debt (other than mortgage notes), such as credit card accounts. The principal
risks of asset-backed securities are that on the underlying obligations,
payments may be made more slowly, and rates of default may be higher, than
expected. In addition, because some of these securities are new or complex,
unanticipated problems may affect their value or liquidity.
Defensive Investing During unusual market conditions, the fund may place up to
100% of total assets in cash or high-quality, short-term debt securities. To the
extent that the fund does this, it is not pursuing its goal.
Year 2000 The investment manager does not currently anticipate that computer
problems related to the year 2000 will have a material effect on the fund.
However, there can be no assurances in this area, including the possibility that
year 2000 computer problems could negatively affect communications systems,
investment markets or the economy in general.
<PAGE>
26 Financial Highlights
- --------------------------------------------------------------------------------
These highlights are intended to help you understand the fund's performance
since its inception. The information in these tables has been audited by
PricewaterhouseCoopers LLP, the fund's independent accountants. Their report and
the fund's financial statements are included in the fund's annual report, which
is available upon request. Total return figures assume reinvestment of all
distributions.
<TABLE>
<CAPTION>
Class A Class B(1) Class B
----------------------------- -------------------- ----------------------------
Years ended April 30 Years ended April 30 Years ended April 30
-------------------- -------------------- --------------------
Per Share Data 1997(a)(b) 1998(b) 1999(b) 1999(b)(f) 1997(a)(b) 1998(b) 1999(b)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 7.00 7.06 7.33 6.91 7.00 7.05 7.31
---- ---- ---- ---- ---- ---- ----
Net investment income ($)* 0.38 0.52 0.55 0.12 0.31 0.49 0.47
Net realized and unrealized gain on
investments, foreign currency, forward
contracts and futures contracts ($) 0.01 0.38 (0.30) 0.00 0.04 0.38 (0.30)
---- ---- ---- ---- ---- ---- ----
Total from investment operations ($) 0.39 0.93 0.22 0.12 0.35 0.87 0.17
---- ---- ---- ---- ---- ---- ----
Dividends from net investment income ($) (0.31) (0.55) (0.56) (0.16) (0.28) (0.50) (0.50)
Distributions from capital gains ($) (0.02) (0.11) (0.11) -- (0.02) (0.11) (0.11)
---- ---- ---- ---- ---- ---- ----
Total distributions ($) (0.33) (0.66) (0.67) (0.16) (0.30) (0.61) (0.61)
---- ---- ---- ---- ---- ---- ----
Net asset value, end of year ($) 7.06 7.33 6.88 6.87 7.05 7.31 6.87
==== ==== ==== ==== ==== ==== ====
Total return (%)(c) 5.60(d) 13.70 3.10 1.71(d) 4.96(d) 12.74 2.49
<CAPTION>
Ratios/Supplemental Data
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Net assets at end of year ($ thousands) 36,110 41,348 36,227 3,726 19,678 37,432 44,110
Expense Ratio (%)* 1.35(e) 1.35 1.35 2.10(e) 2.10(e) 2.10 2.10
Ratio of net investment income
to average net assets (%)* 7.30(e) 7.51 7.36 6.54(e) 6.73(e) 6.77 6.63
Portfolio turnover rate (%) 110.37 179.82 169.92 169.92 110.37 179.82 169.92
*Reflects voluntary reduction of expenses
per share of these amounts ($) 0.01 0.01 0.01 -- 0.01 0.01 0.01
</TABLE>
<PAGE>
27
-----
<TABLE>
<CAPTION>
Class C Class S
-------------------- --------------------
Years ended April 30 Years ended April 30
---------------------------- ----------------------------
Per Share Data 1997(a)(b) 1998(b) 1999(b) 1997(a)(b) 1998(b) 1999(b)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 7.00 7.05 7.31 7.00 7.06 7.33
---- ---- ---- ---- ---- ----
Net investment income ($)* 0.32 0.49 0.46 0.39 0.57 0.54
Net realized and unrealized gain on investments,
foreign currency, forward contracts and futures
contracts ($) 0.03 0.38 (0.29) 0.02 0.38 (0.30)
---- ---- ---- ---- ---- ----
Total from investment operations ($) 0.35 0.87 0.17 0.41 0.95 0.24
---- ---- ---- ---- ---- ----
Dividends from net investment income ($) (0.28) (0.50) (0.50) (0.33) (0.57) (0.57)
Distributions from capital gains ($) (0.02) (0.11) (0.11) (0.02) (0.11) (0.11)
---- ---- ---- ---- ---- ----
Total distributions ($) (0.30) (0.61) (0.61) (0.35) (0.68) (0.68)
---- ---- ---- ---- ---- ----
Net asset value, end of year ($) 7.05 7.31 6.87 7.06 7.33 6.89
==== ==== ==== ==== ==== ====
Total return (%)(c) 4.96(d) 12.74 2.49 5.76(d) 13.99 3.51
<CAPTION>
Ratios/Supplemental Data
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net assets at end of year ($ thousands) 8,590 13,243 15,949 10,908 11,675 11,679
Expense Ratio (%)* 2.10(e) 2.10 2.10 1.10(e) 1.10 1.10
Ratio of net investment income
to average net assets (%)* 6.67(e) 6.77 6.62 7.51(e) 7.74 7.62
Portfolio turnover rate (%) 110.37 179.82 169.92 110.37 179.82 169.92
*Reflects voluntary reduction of expenses
per share of these amounts ($) 0.01 0.01 0.01 0.01 0.01 0.01
</TABLE>
(a) August 30, 1996 (commencement of operations) to April 30, 1997.
(b) Per-share figures have been calculated using the average shares method.
(c) Does not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the distributor and its affiliates had not
voluntarily reduced the fund's expenses.
(d) Not annualized.
(e) Annualized.
(f) January 1, 1999 (commencement of share class) to April 30, 1999.
<PAGE>
28 Board of Trustees
- --------------------------------------------------------------------------------
[GRAPHIC] The Board of Trustees is responsible for the operation of the fund.
They establish the fund's major policies, review investments, and provide
guidance to the investment manager and others who provide services to the fund.
The Trustees have diverse backgrounds and substantial experience in business and
other areas.
Ralph F. Verni
Chairman of the Board, President, Chief Executive Officer and Director, State
Street Research & Management Company
Bruce R. Bond
Chairman of the Board, Chief Executive Officer and President, PictureTel
Corporation
Steve A. Garban
Former Senior Vice President for Finance and Operations and Treasurer, The
Pennsylvania State University
Malcolm T. Hopkins
Former Vice Chairman of the Board and Chief Financial Officer, St. Regis Corp.
Dean O. Morton
Former Executive Vice President, Chief Operating Officer and Director,
Hewlett-Packard Company
Susan M. Phillips
Dean, School of Business and Public Management, George Washington University;
former Member of the Board of Governors of the Federal Reserve System and
Chairman and Commissioner of the Commodity Futures Trading Commission
Toby Rosenblatt
President, Founders Investment Ltd, President, The Glen Ellen Company.
Michael S. Scott Morton
Jay W. Forrester Professor of Management, Sloan School of Management,
Massachusetts Institute of Technology
<PAGE>
Notes 29
- --------------------------------------------------------------------------------
<PAGE>
For Additional Information
- --------------------------------------------------------------------------------
If you have questions about the fund or would like to request a free copy of the
current annual/semiannual report or SAI, contact State Street Research or your
financial professional.
[LOGO] STATE STREET RESEARCH
Service Center
P.O. Box 8408, Boston, MA 02266
Telephone: 1-800-562-0032
Internet: www.ssrfunds.com
You can also obtain information about the fund, including the SAI and certain
other fund documents, on the Internet at www.sec.gov, in person at the SEC's
Public Reference Room in Washington, DC (telephone 1-800-SEC-0330) or by mail by
sending your request, along with a duplicating fee, to the SEC's Public
Reference Section, Washington, DC 20549-6009.
You can find additional information on the fund's structure and its performance
in the following documents:
Annual/Semiannual Reports While the prospectus describes the fund's potential
investments, these reports detail the fund's actual investments as of the report
date. Reports include a discussion by fund management of recent economic and
market trends and fund performance. The annual report also includes the report
of the fund's independent accountants.
Ticker Symbols
- -------------------------------------
Class A SIFAX
Class B(1) (proposed) SIFPX
Class B SBSIX
Class C (proposed) SSFCX
Class S (proposed) SIFSX
Statement of Additional Information (SAI) A supplement to the prospectus, the
SAI contains further information about the fund and its investment limitations
and policies. A current SAI for this fund is on file with the Securities and
Exchange Commission and is incorporated by reference (is legally part of this
prospectus).
- --------------------------------------------------------------------------------
SEC File Number: 811-8322 SI-169G-0999
Control Number: (exp0200)
<PAGE>
This prospectus has information you should know before you invest. Please read
it carefully and keep it with your investment records. As with all mutual
funds, the Securities and Exchange Commission has not approved or disapproved
the securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
This prospectus will also be available in Spanish in October by calling the
State Street Research Service Center at 1-888-638-3193.
- --------------------------------------------------------------------------------
[LOGO] STATE STREET RESEARCH
LEGACY FUND
----------------------------------------------
A tax-managed approach
to investing in stocks for
long-term growth.
Prospectus
September 1, 1999
<PAGE>
Contents
- --------------------------------------------------------------------------------
1 The Fund
---------
1 Goal and Strategies
2 Principal Risks
4 Volatility and Performance
6 Investor Expenses
8 Investment Management
9 Your Investment
----------------
9 Opening an Account
9 Choosing a Share Class
10 Sales Charges
13 Dealer Compensation
14 Buying and Selling Shares
18 Account Policies
20 Distributions and Taxes
21 Investor Services
22 Other Information
------------------
22 Other Securities and Risks
24 Financial Highlights
26 Board of Trustees
Back Cover For Additional Information
<PAGE>
The Fund 1
- --------------------------------------------------------------------------------
[GRAPHIC] Goal and Strategies
Fundamental Goal The fund seeks to provide long-term growth of capital.
Principal Strategies Under normal market conditions, the fund invests at least
65% of total assets in stocks and convertible securities of mid- and large-size
companies.
In managing its portfolio, the fund employs a tax-managed strategy, generally
seeking to identify stocks with long-term growth potential and holding them for
extended periods. This buy-and-hold approach is designed to allow the fund to
focus on long-term capital appreciation while reducing (though not eliminating)
capital gains distributions and their resulting tax liability for shareholders.
While the fund generally expects to invest across a broad range of industries,
it may favor companies in those industries that appear to offer higher
potential for long-term growth.
Although the fund does not expect to do so as a matter of course, it is
permitted to invest up to 35% of total assets in other securities (for example,
bonds and small-size company stocks). The fund may also use derivatives,
particularly as a way of hedging against market downturns.
For more information about the fund's investments and practices, see page 22.
[GRAPHIC] Who May Want To Invest
State Street Research Legacy Fund is designed for investors who seek one or more
of the following:
o a stock investment for long-term growth
o reduced impact of taxes on their investment returns
The fund is not appropriate for investors who:
o want to avoid even moderate to high volatility or possible losses
o are seeking either income or aggressive growth
o are making short-term investments
o are investing emergency reserve money
<PAGE>
2 The Fund continued
- --------------------------------------------------------------------------------
[GRAPHIC] Principal Risks
Because the fund invests primarily in stocks, its major risks are those of stock
investing, including sudden, unpredictable drops in value and the potential for
periods of lackluster performance.
The fund's investment approach, with its emphasis on keeping portfolio turnover
low, means that the fund could continue to hold various stocks through adverse
markets rather than selling them. This could cause the fund to have deeper
losses during down markets than a fund that has invested in similar stocks but
does not seek reduced turnover. To the extent that the fund does sell securities
during times of volatility, either for investment management reasons or to meet
shareholder redemption requests, portfolio turnover and capital gains
distributions are likely to increase as a result. For this reason, shareholders
who actively trade or exchange fund shares could adversely affect the management
of the fund and are discouraged from investing in it.
While the fund's buy-and-hold approach is designed to allow it to capture
long-term gains, prices of some stocks may not return to previous highs. To the
extent that the fund continues to hold these stocks, it may miss opportunities
to realize gains and its long-term performance may be reduced.
Because the fund may invest in U.S. companies with some international business,
and also may invest in foreign companies, it is subject to the risks associated
with international investing.
The fund's shares will rise and fall in value and there is a risk that you could
lose money by investing in the fund. Also, the fund cannot be certain that it
will achieve its goal. Finally, fund shares are not bank deposits and are not
guaranteed, endorsed or insured by any financial institution, goverment entity
or the FDIC.
Information on other securities and risks appears on page 22.
A "snapshot" of the fund's investments may be found in the current annual or
semiannual report (see back cover).
<PAGE>
3
- --------------------------------------------------------------------------------
[GRAPHIC] Tax-Managed Funds
Many stock funds make their buy and sell decisions with an eye toward maximizing
pre-tax performance. Tax-managed funds consider an additional factor: whether
their transactions and the resulting taxable distributions could affect their
shareholders' income tax burden.
Federal tax laws dictate that mutual funds must distribute their net gains from
transactions each year. These distributions are taxable to you during the year
in which they are made -- even if you reinvest them.
As long as a fund continues to hold a stock, any capital appreciation the fund
has in that stock is reflected in the fund's share price, rather than in taxable
distributions. Also, by holding a stock for a longer period, the fund can
distribute any gains from its sale as long-term capital gains. These
distributions are taxed as capital gains rather than ordinary income -- an
advantage for shareholders in higher tax brackets.
In addition to attempting to keep portfolio turnover low, tax-managed funds may
use other techniques to reduce shareholder tax liabilities, such as being
selective in realizing gains and losses.
<PAGE>
4 Volatility and PerfoRmance
- --------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL]
Year ended December 31
----------------------
Year-by-Year Total Return (Class A): 1998
================================================================================
31.87
Best quarter: fourth quarter 1998, up 23.24%
Worst quarter: third quarter 1998, down 12.80%
Return from 1/1/99 - 6/30/99 (not annualized): up 12.59%
As of December 31, 1998
-----------------------------
Average Annual Total Return 1 Year Since Inception*
================================================================================
Class A (%) 24.28 24.28
Class B(1)(a) (%) 25.87 25.87
Class B (%) 25.87 25.87
Class C (%) 29.87 29.87
Class S (%) 32.27 32.27
S&P 500 Index (%) 28.60 28.60
Upper Growth Funds Index (%) 25.69 25.69
* Since inception (12/31/97)
(a) Performance for Class B(1) reflects Class B performance through December
31, 1998. Class B(1) was introduced on January 1, 1999.
<PAGE>
5
--------
[GRAPHIC] Understanding
Volatility and
Performance
The chart and table on the opposite page are designed to show two aspects of the
fund's track record:
o Year-by-Year Total Return shows how volatile the fund has been: how much
the difference has been, historically, between its best years and worst
years (of course, the chart is less meaningful for a new fund such as this
one). In general, funds with higher average annual total returns will also
have higher volatility. The graph includes the effects of fund expenses,
but not sales charges. If sales charges had been included, returns would
have been less than shown.
o Average Annual Total Return is a measure of the fund's performance over
time. It is determined by taking the fund's performance over a given period
and expressing it as an average annual rate.
Average annual total return includes the effects of fund expenses and maximum
sales charges for each class, and assumes that you sold your shares at the end
of the period.
Also included with the fund's average annual returns are two independent
measures of performance. The S&P 500 (officially, the "Standard & Poor's 500
Index") is an unmanaged index of 500 domestic stocks. The Lipper Growth Funds
Index shows the performance of a category of mutual funds with similar goals.
This index, which is also unmanaged, shows you how well the fund has done
compared to competing funds.
When making comparisons, keep in mind that neither the S&P 500 index nor the
Upper index includes the effects of sales charges.
Also, even if your portfolio were identical to the S&P 500, your returns would
always be lower, because the S&P 500 does not include transaction and
administrative expenses.
Keep in mind that past performance is no guarantee of future results.
<PAGE>
6 Investor Expenses
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class descriptions begin on page 9
-------------------------------------------------
Shareholder Fees (% of offering price) Class A Class B(1) Class B Class C Class S
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Maximum front-end sales charge (load) 5.75 0.00 0.00 0.00 0.00
Maximum deferred sales charge (load) 0.00(a) 5.00 5.00 1.00 0.00
<CAPTION>
Annual Fund Operating Expenses (% of average net assets) Class A Class B(1) Class B Class C Class S
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Management fee 0.65 0.65 0.65 0.65 0.65
Distribution/service (12b-1) fees 0.25 1.00 1.00 1.00 0.00
Other expenses 0.33 0.33 0.33 0.33 0.33
---- ---- ---- ---- ----
Total annual fund operating expenses* 1.23 1.98 1.98 1.98 0.98
==== ==== ==== ==== ====
*Because some of the fund's expenses have been
reduced through expense offset arrangements,
actual total operating expenses for the prior
year would have been: 1.22 1.97 1.97 1.97 0.97
<CAPTION>
Example Year Class A Class B(1) Class B Class C Class S
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
1 $693 $701/$201 $701/$201 $301/$201 $100
3 $943 $921/$621 $921/$621 $621 $312
5 $1,212 $1,268/$1,068 $1,268/$1,068 $1,068 $542
10 $1,978 $2,113 $2.113 $2.306 $1.201
</TABLE>
(a) Except for investments of $1 million or more; see page 10.
<PAGE>
7
--------
[GRAPHIC] Understanding
Investor Expenses
The information on the opposite page is designed to give you an idea of what you
should expect to pay in expenses as an investor in the fund:
o Shareholder Fees are costs that are charged to you directly. These fees are
not charged on reinvestments or exchanges.
o Annual Fund Operating Expenses are deducted from the fund's assets every
year, and are thus paid indirectly by all fund investors.
o The Example is designed to allow you to compare the costs of this fund with
those of other funds. It assumes that you invested $10,000 over the years
indicated, reinvested all distributions, earned a hypothetical 5% annual
return and paid the maximum applicable sales charges. For Class B(1) and
Class B shares, it also assumes the automatic conversion to Class A after
eight years.
Where two numbers are shown separated by a slash, the first one assumes you sold
all your shares at the end of the period, while the second assumes you stayed in
the fund. Where there is only one number, the costs would be the same either
way.
Investors should keep in mind that the example is for comparison purposes only.
The fund's actual performance and expenses may be higher or lower.
<PAGE>
8 The Fund continued
- --------------------------------------------------------------------------------
[GRAPHIC] Investment Management
The fund's investment manager is State Street Research & Management Company, One
Financial Center, Boston, MA 02111. The firm traces its heritage back to 1924
and the founding of one of America's first mutual funds. Today the firm has more
than $53 billion in assets under management (as of July 31, 1999), including
more than $17 billion in mutual funds.
The investment manager is responsible for the fund's investment and business
activities, and receives the management fee (0.65% of average net assets,
annually) as compensation.
The investment manager is a subsidiary of Metropolitan Life Insurance Company.
Kennard Woodworth, Jr. has been responsible for the fund's day-to-day portfolio
management since its inception in December 1997. A senior vice president, he
joined the firm in 1986 and has worked as an investment professional since 1961.
<PAGE>
Your Investment 9
- --------------------------------------------------------------------------------
[GRAPHIC] Opening an Account
If you are opening an account through a financial professional, he or she can
assist you with all phases of your investment.
If you are investing through a large retirement plan or other special program,
follow the instructions in your program materials. To open an account without
the help of a financial professional, please use the instructions on these
pages.
[GRAPHIC] Choosing a Share Class
The fund generally offers four share classes, each with its own sales charge and
expense structure: Class A, Class B(1), Class C and Class S. The fund also
offers Class B shares, but only to current Class B shareholders through
reinvestment of dividends and distributions or through exchanges from existing
Class B accounts of State Street Research Funds.
If you are investing a substantial amount and plan to hold your shares for a
long period, Class A shares may make the most sense for you. If you are
investing a lesser amount, you may want to consider Class B(1) shares (if
investing for at least six years) or Class C shares (if investing for less than
six years). If you are investing through a special program, such as a large
employer-sponsored retirement plan or certain programs available through
brokers, you may be eligible to purchase Class S shares.
Because all future investments in your account will be made in the share class
you designate when opening the account, you should make your decision carefully.
Your financial professional can help you choose the share class that makes the
most sense for you.
<PAGE>
10 Your Investment continued
- --------------------------------------------------------------------------------
Class A -- Front Load
o Initial sales charge of 5.75% or less
o Lower sales charges for larger investments; see sales charge schedule on
this page
o Lower annual expenses than Class B(1) or Class C shares because of lower
distribution/ service (12b-1) fee of 0.25%
Class B(1) -- Back Load
o No initial sales charge
o Deferred sales charge of 5% or less on shares you sell within six years
o Annual distribution/service (12b-1) fee of 1.00%
o Automatic conversion to Class A shares after eight years, reducing future
annual expenses
Class B -- Back Load
o Available only to current shareholders. see page 11 for details
Class C -- Level Load
o No initial sales charge
o Deferred sales charge of 1%, paid if you sell shares within one year of
purchase
o Lower deferred sales charge than Class B(1) shares
o Annual distribution/service (12b-1) fee of 1.00%
o No conversion to Class A shares after eight years, so annual expenses do
not decrease
Class S -- Special Programs
o Available only through certain retirement accounts, advisory accounts of
the investment manager and other special programs, including broker
programs through financial professionals with recordkeeping and other
services; these programs usually involve special conditions and separate
fees (consult your financial professional or your program materials)
o No sales charges of any kind
o No distribution/service (12b-1) fees; annual expenses are lower than other
share classes
Sales Charges
Class A -- Front Load
when you invest this % is which equals
this amount deducted this % of
for sales your net
charges investment
- --------------------------------------------------------------------------------
Up to $50,000 5.75 6.10
$50,000 to $100,000 4.50 4.71
$100,000 to $250,000 3.50 3.63
$250,000 to $500,000 2.50 2.56
$500,000 to $1 million 2.00 2.04
$1 million or more see below
With Class A shares, you pay a sales charge when you buy shares.
If you are investing $1 million or more (either as a lump sum or through any of
the methods described on the application), you can purchase Class A shares
without any sales charge.
<PAGE>
11
--------
However, you may be charged a "contingent deferred sales charge" (CDSC) of up to
1% if you sell any shares within one year of purchasing them. See "Other CDSC
Policies" on page 12.
Class A shares are also offered with low or no sales charges through various
wrap-fee programs and other sponsored arrangements (consult your financial
professional or your program materials).
Class B(1) -- Back Load
this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deducted
bought them from your proceeds
- --------------------------------------------------------------------------------
First year 5.00
Second year 4.00
Third year 3.00
Fourth year 3.00
Fifth year 2.00
Sixth year 1.00
Seventh or Eighth year None
With Class B(1) shares, you pay no sales charge when you invest, but you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for six years or less, as described in the table above. See "Other
CDSC Policies" on page 12.
Class B(1) shares automatically convert to Class A shares after eight years;
Class A shares have lower annual expenses.
Class B -- Back Load
Class B shares are available only to current shareholders through reinvestment
of dividends and distributions or through exchanges from existing Class B
accounts of the State Street Research funds. Other investments made by current
Class B shareholders will be in Class B(1) shares. With Class B shares, you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for five years or less. The CDSC ia a percentage of net asset value at
the time of purchase (or of sale, if lower) and is deducted from your proceeds.
When you sell shares in the first year after you bought them, the CDSC is 5.00%;
second year, 4.00%; third year, 3.00%; fourth year, 3.00%; fifth year, 2.00%;
sixth year or later, none. See "Other CDSC Policies" on this page.
<PAGE>
12 Your Investment continued
- --------------------------------------------------------------------------------
Class B shares automatically convert to Class A Shares after eight years.
Class C -- Level Load
this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deducted
bought them from your proceeds
- --------------------------------------------------------------------------------
First year 1.00
Second year or later None
With Class C shares, you pay no sales charge when you invest, but you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for one year or less, as described in the table above. See "Other CDSC
Policies" on this page.
Class C shares currently have the same annual expenses as Class B(1) shares, but
never convert to Class A shares (with their lower annual expenses).
Class S -- Special Programs
Class S shares have no sales charges.
Other CDSC Policies
The CDSC will be based on the net asset value of the shares at the time of
purchase (or sale, if lower). Any shares acquired through reinvestment are not
subject to the CDSC. There is no CDSC on exchanges into other State Street
Research funds, and the date of your initial investment will continue to be used
as the basis for CDSC calculations when you exchange. To ensure that you pay the
lowest CDSC possible, the fund will always use the shares with the lowest CDSC
to fill your sell requests.
The CDSC is waived on shares sold for participant initiated distributions from
State Street Research prototype retirement plans. In other cases, the CDSC is
waived on shares sold for mandatory retirement distributions or for
distributions because of disability or death. Consult your financial
professional or the State Street Research Service Center for more information.
[GRAPHIC] Understanding
Distribution/Service
Fees
As noted in the descriptions on pages 9 to 12, all share classes except Class S
have an annual distribution/service fee, also called a 12b-1 fee.
Under its current 12b-1 plan, the fund may pay certain distribution and service
fees for these classes out of fund assets. Because 12b-1 fees are an ongoing
expense, they will increase the cost of your investment and, over time, could
potentially cost you more than if you had paid other types of sales charges. For
that reason, you should consider the effects of 12b-1 fees as well as sales
loads when choosing a share class.
Some of the 12b-1 fee is used to compensate those financial professionals who
sell fund shares and provide ongoing service to shareholders. The table on page
13 shows how these professionals' compensation is calculated.
The fund may continue to pay 12b-1 fees even if the fund is subsequently closed
to new investors.
<PAGE>
13
--------
[GRAPHIC] Dealer Compensation
Financial professionals who sell shares of State Street Research funds and
perform services for fund investors may receive sales commissions, annual fees
and other compensation. These are paid by the fund's distributor, using money
from sales charges, distribution/service (12b-1) fees and its other resources.
Brokers and agents may charge a transaction fee on the purchase or sale of
shares by shareholders. The distributor may pay its affiliate MetLife
Securities, Inc. additional compensation of up to 0.25% of certain sales or
assets.
<TABLE>
<CAPTION>
Dealer Commissions (%) Class A Class B(1) Class B Class C Class S
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commission See below 4.00 4.00 1.00 0.00
Investments up to $50,000 5.00 -- -- -- --
$50,000 to $100,000 4.00 -- -- -- --
$100,000 to $250,000 3.00 -- -- -- --
$250,000 to $500,000 2.00 -- -- -- --
$500,000 to $1 million 1.75 -- -- -- --
First $1 to 3 million 1.00(a) -- -- -- --
Next $2 million 0.75(a) -- -- -- --
Next $2 million 0.50(a) -- -- -- --
Next $1 and above 0.25(a) -- -- -- --
Annual fee 0.25 0.25 0.25 1.00 0.00
</TABLE>
Brokers for Portfolio Trades
When placing trades for the fund's portfolio, State Street Research chooses
brokers that provide the best execution (a term defined by service as well as
price), but may also consider a broker's sales of fund shares.
(a) If your financial professional declines this commission, the one-year CDSC
on your investment is waived.
<PAGE>
14 Buying and Selling Shares
- --------------------------------------------------------------------------------
(a) Except $500 during special promotional periods; contact your financial
professional.
[GRAPHIC] Policies for
Buying Shares
Once you have chosen a share class, the next step is to determine the amount you
want to invest.
Minimum Initial Investments:
o $10,000 for accounts that use the Investamatic program(a)
o $2,000 for Individual Retirement Accounts(a)
o $2,500 for all other accounts
Minimum Additional Investments:
o $50 for all other accounts
Complete the enclosed application. You can avoid future inconvenience by signing
up now for any services you might later use.
Timing of Requests All requests received in good order by State Street Research
before the close of regular trading on the New York Stock Exchange (usually 4:00
p.m. eastern time) will be executed the same day, at that day's closing share
price. Orders received thereafter will be executed the following day, at that
day's closing share price.
Wire Transactions Funds may be wired between 8:00 a.m. and 4:00 p.m. eastern
time. To make a same-day wire investment, please notify State Street Research by
12:00 noon of your intention to wire funds, and make sure your wire arrives by
4:00 p.m. If the New York Stock Exchange closes before 4:00 p.m. eastern time,
you may be unable to make a same-day wire investment. Your bank may charge a fee
for wiring money.
<PAGE>
Instructions for Buying Shares 15
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
To Open an Account To Add to an Account
<S> <C> <C>
[GRAPHIC] Through a Consult your financial professional or Consult your financial professional or
Professional your program materials. your program materials.
or Program
- -------------------------------------------------------------------------------------------------------------------
By Mail [GRAPHIC] Make your check payable to "State Street Fill out an investment slip or indicate
Research Funds." Forward the check and the fund name and account number on your
your application to State Street check. Make your check payable to "State
Research. Street Research Funds." Forward the
check and slip to State Street Research.
- -------------------------------------------------------------------------------------------------------------------
[GRAPHIC] By Federal Call to obtain an account number and Call State Street Research to obtain a
Funds Wire forward your application to State Street control number. Instruct your bank to
Research. Wire funds using the wire funds to:
instructions at right. o State Street Bank and Trust Company,
Boston, MA
o ABA: 011000028
o BNF: fund name and share class you
want to buy
o AC: 99029761
o OBI: your name and your account
number
o Control: the number given to you by
State Street Research
- -------------------------------------------------------------------------------------------------------------------
By Electronic [GRAPHIC] Verify that your bank is a member of the Call State Street Research to verify
Funds Transfer ACH (Automated Clearing House) system. that the necessary bank information is
(ACH) Forward your application to State Street on file for your account. If it is, you
Research. Please be sure to include the may request a transfer with the same
appropriate bank information. Call State phone call. If not, please ask State
Street Research to request a purchase. Street Research to provide you with an
EZ Trader application.
- -------------------------------------------------------------------------------------------------------------------
[GRAPHIC] By Investamatic Forward your application, with all Call State Street Research to verify
appropriate sections completed, to State that Investamatic is in place on your
Street Research, along with a check for account, or to request a form to add it.
your initial investment payable to Investments are automatic once
"State Street Research Funds." Investamatic is in place.
- -------------------------------------------------------------------------------------------------------------------
By Exchange [GRAPHIC] Call State Street Research or visit our Call State Street Research or visit our
Web site. Web site.
- -------------------------------------------------------------------------------------------------------------------
State Street Research Service Center PO Box 8408, Boston, MA 02266-8408 Internet www.ssrfunds.com
Call toll-free: 1-800-562-0032 (business days 8:00 a.m. - 6:00 p.m., eastern time)
</TABLE>
<PAGE>
16 Your Investment continued
- --------------------------------------------------------------------------------
[GRAPHIC] Policies for
Selling Shares
Circumstances that Require Written Requests Please submit instructions in
writing when any of the following apply:
o you are selling more than $100,000 worth of shares
o the name or address on the account has changed within the last 30 days
o you want the proceeds to go to a name or address not on the account
registration
o you are transferring shares to an account with a different registration or
share class
o you are selling shares held in a corporate or fiduciary account; for these
accounts, additional documents are required:
corporate accounts: certified copy of a corporate resolution
fiduciary accounts: copy of power of attorney or other governing document
To protect your account against fraud, all signatures on these documents must be
guaranteed. You may obtain a signature guarantee at most banks and securities
dealers. A notary public cannot provide a signature guarantee.
Incomplete Sell Requests State Street Research will attempt to notify you
promptly if any information necessary to process your request is missing.
Timing of Requests All requests received in good order by State Street Research
before the close of regular trading on the New York Stock Exchange (usually 4:00
p.m. eastern time) will be executed the same day, at that day's closing share
price. Requests received thereafter will be executed the following day, at that
day's closing share price.
Wire Transactions Proceeds sent by federal funds wire must total at least
$5,000. A fee of $7.50 will be deducted from all proceeds sent by wire, and your
bank may charge an additional fee to receive wired funds.
Selling Recently Purchased Shares If you sell shares before the check or
electronic funds transfer (ACH) for those shares has been collected, you will
not receive the proceeds until your initial payment has cleared. This may take
up to 15 days after your purchase was recorded (in rare cases, longer). If you
open an account with shares purchased by wire, you cannot sell those shares
until your application has been processed.
<PAGE>
Instructions for Selling Shares 17
- --------------------------------------------------------------------------------
[GRAPHIC] Through a Consult your financial professional or your
Professional program materials.
or Program
By Mail [GRAPHIC] Send a letter of instruction, an endorsed stock
power or share certificates (if you hold
certificate shares) to State Street Research.
Specify the fund, the account number and the
dollar value or number of shares. Be sure to
include all necessary signatures and any
additional documents, as well as signature
guarantees if required (see facing page).
[GRAPHIC] By Federal Check with State Street Research to make sure that
Funds Wire a wire redemption privilege, including a bank
designation, is in place on your account. Once
this is established, you may place your request to
sell shares with State Street Research. Proceeds
will be wired to your pre-designated bank account.
(See "Wire Transactions" on facing page.)
By Electronic [GRAPHIC] Check with State Street Research to make sure that
Funds Transfer the EZ Trader feature, including a bank
(ACH) designation, is in place on your account. Once
this is established, you may place your request to
sell shares with State Street Research. Proceeds
will be sent to your pre-designated bank account.
[GRAPHIC] By Telephone As long as the transaction does not require a
written request (see facing page), you or your
financial professional can sell shares by calling
State Street Research. A check will be mailed to
your address of record on the following business
day.
By Exchange [GRAPHIC] Read the prospectus for the fund into which you
are exchanging. Call State Street Research or
visit our Web site.
[GRAPHIC] By Systematic See plan information on page 21.
Withdrawal Plan
State Street Research Service Center PO Box 8408, Internet www.ssrfunds.com
Boston, MA 02266-8408
Call toll-free: 1-800-562-0032 (business days 8:00
a.m. - 6:00 p.m., eastern time)
<PAGE>
18 Your Investment continued
- --------------------------------------------------------------------------------
[GRAPHIC] Account Policies
Telephone Requests When you open an account you automatically receive telephone
privileges, allowing you to place requests for your account by telephone. Your
financial professional can also use these privileges to request exchanges on
your account and, with your written permission, redemptions. For your
protection, all telephone calls are recorded.
As long as State Street Research takes certain measures to authenticate
telephone requests on your account, you may be held responsible for unauthorized
requests. Unauthorized telephone requests are rare, but if you want to protect
yourself completely, you can decline the telephone privilege on your
application. The fund may suspend or eliminate the telephone privilege at any
time.
Exchange Privileges There is no fee to exchange shares among State Street
Research funds. Your new fund shares will be the equivalent class of your
current shares. Any contingent deferred sales charges will continue to be
calculated from the date of your initial investment. You must hold Class A
shares of any fund for at least 30 days before you may exchange them for Class A
shares of a different fund with a higher applicable sales charge.
Frequent exchanges can interfere with fund management and drive up costs for all
shareholders. Because of this, the fund currently limits each account, or group
of accounts under common ownership or control, to six exchanges per calendar
year. The fund may change or eliminate the exchange privilege at any time, may
limit or cancel any shareholder's exchange privilege and may refuse to accept
any exchange request, particularly those associated with "market timing"
strategies.
For Merrill Lynch customers, exchange privileges extend to Summit Cash Reserves
Fund, which is related to the fund for purposes of investment and investor
services.
Accounts with Low Balances If the value of your account falls below $1,500,
State Street Research may mail you a notice asking you to bring the account back
up to $1,500 or close it out. If you do not take action within 60 days, State
Street Research may either sell your shares and mail the proceeds to you at the
address of record or, depending on the circumstances, may deduct an annual
maintenance fee (currently $18).
<PAGE>
19
--------
The Fund's Business Hours The fund is open the same days as the New York Stock
Exchange (generally Monday through Friday). Fund representatives are available
from 8:00 a.m. to 6:00 p.m. eastern time on these days.
Calculating Share Price The fund calculates its net asset value per share (NAV)
every business day at the close of regular trading on the New York Stock
Exchange (but, not later than 4:00 p.m. eastern time). NAV is calculated by
dividing the fund's net assets by the number of existing shares.
In calculating its NAV, the fund uses the last reported sale price or quotation
for portfolio securities. However, in cases where these are unavailable, or when
the investment manager believes that subsequent events have rendered them
unreliable, the fund may use fair-value estimates instead.
Because foreign securities markets are sometimes open on different days from
U.S. markets, there may be instances when the value of the fund's portfolio
changes on days when you cannot buy or sell fund shares.
Reinstating Recently Sold Shares For 120 days after you sell shares, you have
the right to "reinstate" your investment by putting some or all of the proceeds
into any currently available State Street Research fund at net asset value. Any
CDSC you paid on the amount you are reinstating will be credited to your
account. You may only use this privilege once in any twelve-month period with
respect to your shares of a given fund.
Additional Policies Please note that the fund maintains additional policies and
reserves certain rights, including:
o Requirements for initial or additional investments, reinvestments, periodic
investment plans, retirement and employee benefit plans, sponsored
arrangements and other similar programs, may be changed from time to
time--without further notice or supplement to this prospectus
o All orders to purchase shares are subject to acceptance by the fund
o At any time, the fund may change or discontinue its sales charge waivers
and any of its order acceptance practices, and may suspend the sale of its
shares
o The fund may delay sending you redemption proceeds for up to seven days, or
longer if permitted by the SEC
o To permit investors to obtain the current price, dealers are responsible
for transmitting all orders to the State Street Research Service Center
promptly
<PAGE>
20 Your Investment continued
- --------------------------------------------------------------------------------
[GRAPHIC] Tax Considerations
Unless your investment is in a tax-deferred account, you may want to avoid:
o investing a large amount in the fund close to the end of the fiscal year or
a calendar year (if the fund makes a capital gains distribution, you will
receive some of your investment back as a taxable distribution)
o selling shares at a loss for tax purposes and investing in a substantially
identical investment within 30 days before or after such sale (such a
transaction is usually considered a "wash sale," and you will not be
allowed to claim a tax loss)
[GRAPHIC] Distributions and Taxes
Income and Capital Gains Distributions The fund typically distributes its net
income and net capital gains, if any, around the end of the fund's fiscal year,
which is April 30. To comply with tax regulations, the fund may also pay an
additional capital gains distribution in December.
You may have your distributions reinvested in the fund, invested in a different
State Street Research fund, deposited in a bank account or mailed out by check.
If you do not give State Street Research other instructions, your distributions
will automatically be reinvested in the fund.
Tax Effects of Distributions and Transactions In general, any dividends and
short-term capital gains distributions you receive from the fund are taxable as
ordinary income. Distributions of long-term capital gains are generally taxable
as capital gains -- in most cases, at a different rate from that which applies
to ordinary income.
The tax you pay on a given capital gains distribution generally depends on how
long the fund has held the portfolio securities it sold. It does not depend on
how long you have owned your fund shares or whether you reinvest your
distributions. Every year, the fund will send you information detailing the
amount of ordinary income and capital gains distributed to you for the previous
year.
<PAGE>
21
--------
The sale of shares in your account may produce a gain or loss, and is a taxable
event. For tax purposes, an exchange is the same as a sale.
Your investment in the fund could have additional tax consequences. Please
consult your tax professional for assistance.
Backup Withholding By law, the fund must withhold 31% of your distributions and
proceeds if you have not provided complete, correct taxpayer information.
[GRAPHIC] Investor Services
Investamatic Program Use Investamatic to set up regular automatic investments in
the fund from your bank account. You determine the frequency and amount of your
investments.
Systematic Withdrawal Plan This plan is designed for retirees and other
investors who want regular withdrawals from a fund account. The plan is free and
allows you to withdraw up to 12% of your fund assets a year (minimum $50 per
withdrawal) without incurring any contingent deferred sales charges. Certain
terms and minimums apply.
EZ Trader This service allows you to purchase or sell fund shares over the
telephone through the ACH (Automated Clearing House) system.
Dividend Allocation Plan This plan automatically invests your distributions from
the fund into another fund of your choice, without any fees or sales charges.
Automatic Bank Connection This plan lets you route any distributions or
Systematic Withdrawal Plan payments directly to your bank account.
Retirement Plans State Street Research also offers a full range of prototype
retirement plans for individuals, sole proprietors, partnerships, corporations
and employees.
Call 1-800-562-0032 for information on any of the services described above.
<PAGE>
22 Other Information
- --------------------------------------------------------------------------------
[GRAPHIC] Other Securities
and Risks
Each of the fund's portfolio securities and investment practices offers certain
opportunities and carries various risks. Major investments and risk factors are
outlined in the fund description starting on page 1. Below are brief
descriptions of other securities and practices, along with their associated
risks.
Restricted and Illiquid Securities Any securities that are thinly traded or
whose resale is restricted can be difficult to sell at a desired time and price.
Some of these securities are new and complex, and trade only among institutions;
the markets for these securities are still developing, and may not function as
efficiently as established markets. Owning a large percentage of restricted and
illiquid securities could hamper the fund's ability to raise cash to meet
redemptions. Also, because there may not be an established market price for
these securities, the fund may have to estimate their value, which means that
their valuation (and, to a much smaller extent, the valuation of the fund) may
have a subjective element.
International Exposure Many U.S. companies in which the fund may invest generate
significant revenues and earnings from abroad. As a result, these companies and
the prices of their securities may be affected by weaknesses in global and
regional economies and the relative value of foreign currencies to the U.S.
dollar. These factors, taken as a whole, could adversely affect the price of
fund shares.
Foreign Investments Foreign securities are generally more volatile than their
domestic counterparts, in part because of higher political and economic risks,
lack of reliable information and fluctuations in currency exchange rates. These
risks are usually higher in less developed countries. The fund may use foreign
currencies and related instruments to hedge its foreign investments.
In addition, foreign securities may be more difficult to resell and the markets
for them less efficient than for comparable U.S. securities. Even where a
foreign security increases in price in its local currency, the appreciation may
be diluted by the negative effect of exchange rates when the security's value is
converted to U.S. dollars. Foreign withholding taxes also may apply and errors
and delays may occur in the settlement process for foreign securities.
Derivatives Derivatives, a category that includes options and futures, are
financial instruments whose value derives from another security, an
<PAGE>
23
--------
index or a currency. The fund may use derivatives for hedging (attempting to
offset a potential loss in one position by establishing an interest in an
opposite position). This includes the use of currency-based derivatives for
hedging its positions in foreign securities. The fund may also use derivatives
for speculation (investing for potential income or capital gain).
While hedging can guard against potential risks, it adds to the fund's expenses
and can eliminate some opportunities for gains. There is also a risk that a
derivative intended as a hedge may not perform as expected.
The main risk with derivatives is that some types can amplify a gain or loss,
potentially earning or losing substantially more money than the actual cost of
the derivative.
With some derivatives, whether used for hedging or speculation, there is also
the risk that the counterparty may fail to honor its contract terms, causing a
loss for the fund.
Securities Lending The fund may seek additional income by lending portfolio
securities to qualified institutions. By reinvesting any cash collateral it
receives in these transactions, the fund could realize additional gains or
losses. If the borrower fails to return the securities and the invested
collateral has declined in value, the fund could lose money.
Bonds The value of any bonds held by the fund is likely to decline when interest
rates rise; this risk is greater for bonds with longer maturities. A less
significant risk is that a bond issuer could default on principal or interest
payments, causing a loss for the fund. However, junk bonds (those in rating
categories below BBB/Baa) have a higher risk of default than investment grade
bonds, and their market prices can be more volatile.
When-issued Securities The fund may invest in securities prior to their date of
issue. These securities could fall in value by the time they are actually
issued, which may be any time from a few days to over a year.
Defensive Investing During unusual market conditions, the fund may place up to
100% of total assets in cash or high-quality, short-term debt securities. To the
extent that the fund does this, it is not pursuing its goal.
Year 2000 The investment manager does not currently anticipate that computer
problems related to the year 2000 will have a material effect on the fund.
However, there can be no assurances in this area, including the possibility that
year 2000 computer problems could negatively affect communications systems,
investment markets or the economy in general.
<PAGE>
24 Financial Highlights
- --------------------------------------------------------------------------------
These highlights are intended to help you understand the fund's performance
since its inception. The information in these tables has been audited by
PricewaterhouseCoopers LLP, the fund's independent accountants. Their report and
the fund's financial statements are included in the fund's annual report, which
is available upon request. Total return figures assume reinvestment of all
distributions.
<TABLE>
<CAPTION>
Class A Class B(1) Class B
-------------------------------------------------------------------------
Years ended April 30 Years ended April 30 Years ended April 30
---------------------- -------------------- ------------------------
Per Share Data 1998(a)(b) 1999 1999(a)(f) 1998(a)(b) 1999(a)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 10.00 11.66 13.08 10.00 11.64
----- ----- ----- ----- -----
Net investment income (loss) ($)* 0.00 (0.02) 0.04) (0.03) (0.11)
Net realized and unrealized gain
on investments ($) 1.66 2.79 1.24 1.67 2.76
----- ----- ----- ----- -----
Total from investment operations ($) 1.66 2.77 1.20 1.64 2.65
----- ----- ----- ----- -----
Distributions from net realized gains ($) -- (0.01) -- -- (0.01)
----- ----- ----- ----- -----
Total distributions -- (0.01) -- -- (0.01)
----- ----- ----- ----- -----
Net asset value, end of year ($) 11.66 14.42 14.28 11.64 14.28
===== ===== ===== ===== =====
Total return (%)(c) 16.60(d) 23.73 9.17(d) 16.40(d) 22.74
Ratios/Supplemental Data
- -------------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 11,984 58,642 24,454 19,688 88,383
Expense ratio (%)* 1.25(e) 1.20 1.88(e) 2.00(e) 1.95
Ratio of net investment income (loss)
to average net assets (%)* 0.01(e) (0.14) (1.00)(e) (0.76)(e) (0.89)
Portfolio turnover rate (%) 6.44 42.09 42.09 6.44 42.09
* Reflects voluntary reduction of expenses
per share of these amounts ($) 0.04 0.00 -- 0.04 0.00
</TABLE>
<PAGE>
25
--------
<TABLE>
<CAPTION>
Class C Class S
----------------------------------------------------------
Years ended April 30 Years ended April 30
---------------------- -----------------------
Per Share Data 1998(a)(b) 1999(a) 1998(a)(b) 1999(a)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year ($) 10.00 11.63 10.00 11.68
----- ----- ----- -----
Net investment income (loss) ($)* (0.03) (0.11) 0.03 0.02
Net realized and unrealized gain
on investments ($) 1.66 2.77 1.65 2.79
----- ----- ----- -----
Total from investment operations ($) 1.63 2.66 1.68 2.81
----- ----- ----- -----
Distributions from net realized gains ($) -- (0.01) -- (0.01)
----- ----- ----- -----
Total distributions ($) -- (0.01) -- (0.01)
----- ----- ----- -----
Net asset value, end of year ($) 11.63 14.28 11.68 14.48
===== ===== ===== =====
Total return (%)(c) 16.30(d) 22.85 16.80(d) 24.04
Ratios/Supplemental Data
- ---------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 4,977 26,399 4,127 6,367
Expense ratio (%)* 2.00(e) 1.95 1.00(e) 0.95
Ratio of net investment income (loss)
to average net assets (%)* (0.69)(e) (0.90) 0.60(e) 0.16
Portfolio turnover rate (%) 6.44 42.09 6.44 42.09
* Reflects voluntary reduction of expenses
per share of these amounts ($) 0.04 0.00 0.09 0.01
</TABLE>
(a) Per-share figures have been calculated using the average shares method.
(b) December 31, 1997 (commencement of operations) to April 30, 1998.
(c) Does not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the distributor and its affiliates had not
voluntarily reduced the fund's expenses.
(d) Not annualized.
(e) Annualized.
(f) January 1, 1999 (commercement of share class) to April 30, 1999.
<PAGE>
26 Board of Trustees
- --------------------------------------------------------------------------------
[GRAPHIC] The Board of Trustees is responsible for the operation of the fund.
They establish the fund's major policies, review investments, and provide
guidance to the investment manager and others who provide services to the fund.
The Trustees have diverse backgrounds and substantial experience in business and
other areas.
Ralph F. Verni
Chairman of the Board, President,
Chief Executive Officer and Director,
State Street Research & Management
Company
Bruce R. Bond
Chairman of the Board, Chief Executive
Officer and President,
PictureTel Corporation
Steve A. Garban
Former Senior Vice President for Finance
and Operations and Treasurer,
The Pennsylvania State University
Malcolm T. Hopkins
Former Vice Chairman of the Board
and Chief Financial Officer,
St. Regis Corp.
Dean O. Morton
Former Executive Vice President,
Chief Operating Officer and Director,
Hewlett-Packard Company
Susan M. Phillips
Dean, School of Business and Public
Management, George Washington
University, former Member of the Board of
Governors of the Federal Reserve System
and Chairman and Commissioner of the
Commodity Futures Trading Commission
Toby Rosenblatt
President, Founders Investments Ltd.
President, The Glen Ellen Company
Michael S. Scott Morton
Jay W. Forrester Professor of
Management, Sloan School of
Management, Massachusetts
Institute of Technology
<PAGE>
Notes 27
- --------------------------------------------------------------------------------
<PAGE>
28 Notes
- --------------------------------------------------------------------------------
<PAGE>
Notes 29
- --------------------------------------------------------------------------------
<PAGE>
For Additional Information
- --------------------------------------------------------------------------------
If you have questions about the fund or would like to request a free copy of the
current annual/semiannual report or SAI, contact State Street Research or your
financial professional.
[GRAPHIC] STATE STREET RESEARCH
Service Center
P.O. Box 8408, Boston, MA 02266
Telephone: 1-800-562-0032
Internet: www.ssrfunds.com
You can also obtain information about the fund, including the SAI and certain
other fund documents, on the Internet at www.sec.gov, in person at the SEC's
Public Reference Room in Washington, DC (telephone 1-800-SEC-0330) or by mail by
sending your request, along with a duplicating fee, to the SEC's Public
Reference Section, Washington, DC 20549-6009.
You can find additional information on the fund's structure and its performance
in the following documents:
Annual/Semiannual Reports While the prospectus describes the fund's potential
investments, these reports detail the fund's actual investments as of the report
date. Reports include a discussion by fund management of recent economic and
market trends and fund performance. The annual report also includes the report
of the fund's independent accountants.
Ticker Symbols
- --------------------------------------------------------------------------------
Class A (proposed) SRLAX
Class B(1) (proposed) SRLPX
Class B SRLBX
Class C (proposed) SRLCX
Class 5 (proposed) SRL5X
Statement of Additional Information (SAI)
A supplement to the prospectus, the SAI contains further information about the
fund and its investment limitations and policies. A current SAI for this fund is
on file with the Securities and Exchange Commission and is incorporated by
reference (is legally part of this prospectus).
prospectus
- --------------------------------------------------------------------------------
SEC File Number: 811-8322 LF-160G-0999
Control Number: (exp0900)SSR-LD
<PAGE>
This prospectus has information you should know before you invest. Please read
it carefully and keep it with your investment records.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
This prospectus will also be available in Spanish in October by calling the
State Street Research Service Center at 1-888-638-3193.
- --------------------------------------------------------------------------------
[LOGO] STATE STREET RESEARCH
Galileo Fund
----------------------------------------------
A growth fund
emphasizing stock
selection within a
defined sector mix.
Prospectus
September 1, 1999
<PAGE>
Contents
- --------------------------------------------------------------------------------
1 The Fund
----------
1 Goal and Strategies
2 Principal Risks
4 Investor Expenses
6 Investment Management
7 Your Investment
-----------------
7 Opening an Account
7 Choosing a Share Class
8 Sales Charges
11 Dealer Compensation
12 Buying and Selling Shares
16 Account Policies
18 Distributions and Taxes
19 Investor Services
20 Other Information
-------------------
20 Other Securities and Risks
22 Financial Highlights
24 Board of Trustees
Back Cover For Additional Information
<PAGE>
The Fund 1
- --------------------------------------------------------------------------------
[GRAPHIC] Goal and Strategies
Fundamental Goal The fund seeks to provide long-term growth of capital.
Principal Strategies Under normal market conditions, the fund invests at least
65% of total assets in stocks and convertible securities of companies in the
Russell 1000 Index (an index of the 1,000 largest publicly traded U.S.
companies) and of other U.S. and foreign companies of comparable size.
The fund invests in companies that appear to offer potential for long-term
growth. Rather than trying to anticipate which sectors of the market will have
the best performance, the fund intends to add value by identifying the most
promising securities within each sector. A sector is a group of industries with
shared characteristics, such as consumer staples (which includes makers of foods
and household products and drug and grocery store chains), financial services
and health care. While the fund's sector weightings are expected to approximate
those of the Russell 1000, the particular stocks owned by the fund will not
mirror the index.
In selecting stocks, the investment manager follows an approach that emphasizes
the role of its in-house research analysts. While the portfolio manager has
primary responsibility for day-to-day management of the
[GRAPHIC] Who May Want To Invest State Street Research Galileo Fund is designed
for investors who seek one or more of the following:
o a stock fund for long-term growth
o a stock fund that emphasizes large-size companies
o a stock fund with broad exposure across industry sectors
The fund is not appropriate for investors who:
o want to avoid high volatility or possible losses
o are making short-term investments
o are investing emergency reserve money
o are seeking regular income
<PAGE>
2 The Fund continued
- --------------------------------------------------------------------------------
fund, he delegates responsibility for stock selection to research analysts. Each
analyst is responsible for buying and selling stocks in specific industries,
subject to the portfolio manager's supervision.
The fund reserves the right to invest up to 35% of total assets in other
securities (for example, small company stocks). The fund may also use
derivatives, particularly as a way of hedging.
For more information about the fund's investments and practices, see page 20.
[GRAPHIC] Principal Risks
Because the fund invests primarily in stocks, its major risks are those of stock
investing, including sudden, unpredictable drops in value and the potential for
periods of lackluster performance.
The fund's policy of remaining invested in all sectors of the Russell 1000 means
that its performance will be affected by sector-wide downturns. In some
circumstances, when the stocks within a given sector move up or down in tandem,
the fund may not be able to add substantial value through its stock selection
strategy. The fund may underperform certain other stock funds (those emphasizing
small company stocks, for example) during periods when large company stocks in
general are out of favor.
The success of the fund's investment strategy depends largely on the skill of
the portfolio manager and the research analysts in assessing the potential of
the stocks the fund buys.
The fund's management approach, which may include short-term trading, could
cause the fund's portfolio turnover rate to be above-average for a stock fund.
High turnover will increase the fund's brokerage costs and may increase your tax
liability.
Because the fund may invest in U.S. companies with some international business,
and may also invest in foreign companies, it is subject to the risks associated
with international investing.
The fund's shares will rise and fall in value and there is a risk that you could
lose money by investing in the
<PAGE>
3
--------
fund. Also, the fund cannot be certain that it will achieve its goal. Finally,
fund shares are not bank deposits and are not guaranteed, endorsed or insured by
any financial institution, government entity or the FDIC.
Information on other securities and risks appears on page 20.
A "snapshot" of the fund's investments may be found in the current annual or
semiannual report (see back cover).
[GRAPHIC] The Role of
Research Analysts
Research analysts can play a critical role in the success of a fund's investment
strategy. An enormous quantity of information is available about publicly traded
companies. For a fund with a broad-based investment program (such as one focused
on large company stocks), it would be very difficult for a single portfolio
manager to analyze all the available information.
Typically, an analyst is assigned to several industries within one or more
market sectors and has responsibility for developing a high level of knowledge
of the companies in those industries. In most mutual funds, the analyst's
expertise is then made available to the portfolio manager, who is responsible
for making investment decisions for the fund.
The relative role of research analysts can vary. In some circumstances an
analyst is responsible primarily for providing information a portfolio manager
requests, such as earnings estimates or industry outlooks. In other situations,
analysts play a more prominent role, as in the case of this fund, where they are
given authority for the selection of portfolio investments. By emphasizing the
role of analysts, the fund has the potential to benefit most directly from the
insights of those who are closest to the relevant investment information.
<PAGE>
4 Investor Expenses
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class descriptions begin on page 7
---------------------------------------------------------------
Shareholder Fees (% of offering price) Class A Class B(1) Class B Class C Class S
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum front-end sales charge (load) 5.75 0.00 0.00 0.00 0.00
-------------------------------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) 0.00(a) 5.00 5.00 1.00 0.00
-------------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses (% of average net assets) Class A Class B(1) Class B Class C Class S
- ------------------------------------------------------------------------------------------------------------------------------
Management fee 0.65 0.65 0.65 0.65 0.65
-------------------------------------------------------------------------------------------------------------------------
Distribution/service (12b-1) fees 0.25 1.00 1.00 1.00 0.00
-------------------------------------------------------------------------------------------------------------------------
Other expenses 1.12 1.12 1.12 1.12 1.12
-------------------------------------------------------------------------------------------------------------------------
Total annual fund operating expenses* 2.02 2.77 2.77 2.77 1.77
==== ==== ==== ==== ====
-------------------------------------------------------------------------------------------------------------------------
*Because some of the fund's expenses have been
subsidized or reduced through expense offset
arrangements, actual total operating expenses for
the prior period would have been: 1.25 2.00 2.00 2.00 1.00
The fund expects the expense subsidy to continue
through the current fiscal year, although there
is no guarantee that it will.
-------------------------------------------------------------------------------------------------------------------------
Example Year Class A Class B(1) Class B Class C Class S
- ------------------------------------------------------------------------------------------------------------------------------
1 $768 $780/$280 $780/$280 $380/$280 $180
-------------------------------------------------------------------------------------------------------------------------
3 $1,172 $1,159/$859 $1,159/$859 $859 $557
-------------------------------------------------------------------------------------------------------------------------
5 $1,600 $1,664/$1,464 $1,664/$1,464 $1,464 $959
-------------------------------------------------------------------------------------------------------------------------
10 $2,788 $2,920 $2,920 $3,099 $2,084
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Except for investments of $1 million or more; see page 8.
<PAGE>
5
--------
[GRAPHIC] Understanding
Investor Expenses
The information on the opposite page is designed to give you an idea of what you
should expect to pay in expenses as an investor in the fund:
o Shareholder Fees are costs that are charged to you directly. These fees are
not charged on reinvestments or exchanges.
o Annual Fund Operating Expenses are deducted from the fund's assets every
year, and are thus paid indirectly by all fund investors.
o The Example is designed to allow you to compare the costs of this fund with
those of other funds. It assumes that you invested $10,000 over the years
indicated, reinvested all distributions, earned a hypothetical 5% annual
return and paid the maximum applicable sales charges. For Class B(1) and
Class B shares, it also assumes the automatic conversion to Class A after
eight years.
Where two numbers are shown separated by a slash, the first one assumes you sold
all your shares at the end of the period, while the second assumes you stayed in
the fund. Where there is only one number, the costs would be the same either
way.
The figures in the Example assume full annual expenses, and would be lower if
they reflected the subsidy.
Investors should keep in mind that the example is for comparison purposes only.
The fund's actual performance and expenses may be higher or lower.
<PAGE>
6 The Fund continued
- --------------------------------------------------------------------------------
[GRAPHIC] Investment Management
The fund's investment manager is State Street Research & Management Company, One
Financial Center, Boston, MA 02111. The firm traces its heritage back to 1924
and the founding of one of America's first mutual funds. Today the firm has more
than $53 billion in assets under management (as of July 31, 1999), including
more than $17 billion in mutual funds.
The investment manager is responsible for the fund's investment and business
activities, and receives the management fee (0.65% of average net assets,
annually) as compensation. The investment manager is a subsidiary of
Metropolitan Life Insurance Company.
Thomas J. Dillman has had primary responsibility for the fund's day-to-day
portfolio management since its inception in March 1998. A senior vice president,
he has worked as an investment professional since 1980.
<PAGE>
Your Investment 7
- --------------------------------------------------------------------------------
[GRAPHIC] Opening an Account
If you are opening an account through a financial professional, he or she can
assist you with all phases of your investment.
If you are investing through a large retirement plan or other special program,
follow the instructions in your program materials.
To open an account without the help of a financial professional, please use the
instructions on these pages.
[GRAPHIC] Choosing a Share Class
The fund generally offers four share classes, each with its own sales charge and
expense structure: Class A, Class B(1), Class C and Class S. The fund also
offers Class B shares, but only to current Class B shareholders through
reinvestment of dividends and distributions or through exchanges from existing
Class B accounts of State Street Research funds.
If you are investing a substantial amount and plan to hold your shares for a
long period, Class A shares may make the most sense for you. If you are
investing a lesser amount, you may want to consider Class B(1) shares (if
investing for at least six years) or Class C shares (if investing for less than
six years). If you are investing through a special program, such as a large
employer-sponsored retirement plan or certain programs available through
brokers, you may be eligible to purchase Class S shares.
Because all future investments in your account will be made in the share class
you designate when opening the account, you should make your decision carefully.
Your financial professional can help you choose the share class that makes the
most sense for you.
<PAGE>
8 Your Investment continued
- --------------------------------------------------------------------------------
Class A -- Front Load
o Initial sales charge of 5.75% or less
o Lower sales charges for larger investments; see sales charge schedule at
right
o Lower annual expenses than Class B(1) or Class C shares because of lower
distribution/ service (12b-1) fee of 0.25%
Class B(1) -- Back Load
o No initial sales charge
o Deferred sales charge of 5% or less on shares you sell within six years
o Annual distribution/service (12b-1) fee of 1.00%
o Automatic conversion to Class A shares after eight years, reducing future
annual expenses
Class B -- Back Load
o Available only to current shareholders. See page 9 for details
Class C -- Level Load
o No initial sales charge
o Deferred sales charge of 1%, paid if you sell shares within one year of
purchase
o Lower deferred sales charge than Class B(1) shares
o Annual distribution/service (12b-1) fee of 1.00%
o No conversion to Class A shares after eight years, so annual expenses do
not decrease
Class S -- Special Programs
o Available only through certain retirement accounts, advisory accounts of
the investment manager and other special programs, including broker
programs through financial professionals with recordkeeping and other
services; these programs usually involve special conditions and separate
fees (consult your financial professional or your program materials)
o No sales charges of any kind
o No distribution/service (12b-1) fees; annual expenses are lower than other
share classes
Sales Charges
Class A -- Front Load
when you invest this % is which equals
this amount deducted this % of
for sales your net
charges investment
- --------------------------------------------------------------------------------
Up to $50,000 5.75 6.10
- --------------------------------------------------------------------------------
$50,000 - $100,000 4.50 4.71
- --------------------------------------------------------------------------------
$100,000 - $250,000 3.50 3.63
- --------------------------------------------------------------------------------
$250,000 - $500,000 2.50 2.56
- --------------------------------------------------------------------------------
$500,000 - $1 million 2.00 2.04
- --------------------------------------------------------------------------------
$1 million or more see below
- --------------------------------------------------------------------------------
With Class A shares, you pay a sales charge when you buy shares.
If you are investing $1 million or more (either as a lump sum or through any of
the methods described on the application), you can purchase Class A shares
without any sales charge. However, you may be charged a "contingent deferred
sales charge" (CDSC) of up to 1% if you sell any shares within one year of
purchasing them. See "Other CDSC Policies" on page 10.
<PAGE>
9
--------
Class A shares are also offered with low or no sales charges through various
wrap-fee programs and other sponsored arrangements (consult your financial
professional or your program materials).
Class B(1) -- Back Load
this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deduct-
bought them ed from your proceeds
- --------------------------------------------------------------------------------
First year 5.00
- --------------------------------------------------------------------------------
Second year 4.00
- --------------------------------------------------------------------------------
Third year 3.00
- --------------------------------------------------------------------------------
Fourth year 3.00
- --------------------------------------------------------------------------------
Fifth year 2.00
- --------------------------------------------------------------------------------
Sixth year 1.00
- --------------------------------------------------------------------------------
Seventh or Eighth year None
With Class B(1) shares, you pay no sales charge when you invest, but you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for six years or less, as described in the table above. See "Other
CDSC Policies" on page 10.
Class B(1) shares automatically convert to Class A shares after eight years;
Class A shares have lower annual expenses.
Class B -- Back Load
Class B shares are available only to current shareholders through reinvestment
of dividends and distributions or through exchanges from existing Class B
accounts of the State Street Research funds. Other investments made by current
Class B shareholders will be in Class B(1) shares.
With Class B shares, you are charged a "contingent deferred sales charge" (CDSC)
when you sell shares you have held for five years or less. The CDSC is a
percentage of net assset value at the time of purchase (or of sale, if lower)
and is deducted from your proceeds. When you sell shares in the first year after
you bought them, the CDSC is 5.00%; second year, 4.00%; third year, 3.00%;
fourth year, 3.00%; fifth year, 2.00%; sixth year or later, none. See "Other
CDSC Policies" on Page 10.
Class B shares automatically convert to Class A shares after eight years.
<PAGE>
10 Your Investment continued
- --------------------------------------------------------------------------------
Class C -- Level Load
this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deduct-
bought them ed from your proceeds
- --------------------------------------------------------------------------------
First year 1.00
- --------------------------------------------------------------------------------
Second year or later None
- --------------------------------------------------------------------------------
With Class C shares, you pay no sales charge when you invest, but you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for one year or less, as described in the table above. See "Other CDSC
Policies" on this page.
Class C shares currently have the same annual expenses as Class B(1) shares, but
never convert to Class A shares (with their lower annual expenses).
Class S -- Special Programs
Class S shares have no sales charges.
Other CDSC Policies
The CDSC will be based on the net asset value of the shares at the time of
purchase (or sale, if lower). Any shares acquired through reinvestment are not
subject to the CDSC. There is no CDSC on exchanges into other State Street
Research funds, and the date of your initial investment will continue to be used
as the basis for CDSC calculations when you exchange. To ensure that you pay the
lowest CDSC possible, the fund will always use the shares with the lowest CDSC
to fill your sell requests.
The CDSC is waived on shares sold for participant initiated distributions from
State Street Research prototype retirement plans. In other cases, the CDSC is
waived on shares sold for mandatory retirement distributions or for
distributions because of disability or death. Consult your financial
professional or the State Street Research Service Center for more information.
[GRAPHIC] Understanding
Distribution/Service
Fees
As noted in the descriptions on pages 8 to 10, all share classes except Class S
have an annual distribution/service fee, also called a 12b-1 fee.
Under its current 12b-1 plan, the fund may pay certain distribution and service
fees for these classes out of fund assets. Because 12b-1 fees are an ongoing
expense, they will increase the cost of your investment and, over time, could
potentially cost you more than if you had paid other types of sales charges. For
that reason, you should consider the effects of 12b-1 fees as well as sales
loads when choosing a share class.
Some of the 12b-1 fee is used to compensate those financial professionals who
sell fund shares and provide ongoing service to shareholders. The table on page
11 shows how these professionals' compensation is calculated.
The fund may continue to pay 12b-1 fees even if the fund is subsequently closed
to new investors.
<PAGE>
11
--------
[GRAPHIC] Dealer
Compensation
Financial professionals who sell shares of State Street Research funds and
perform services for fund investors may receive sales commissions, annual fees
and other compensation. These are paid by the fund's distributor, using money
from sales charges, distribution/service (12b-1) fees and its other resources.
Brokers and agents may charge a transaction fee on the purchase or sale of
shares by shareholders. The distributor may pay its affiliate MetLife
Securities, Inc. additional compensation of up to 0.25% of certain sales or
assets.
<TABLE>
<CAPTION>
Dealer Commissions % Class A Class B(1) Class B Class C Class S
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commission See below 4.00 4.00 1.00 0.00
- ----------------------------------------------------------------------------------
Investments up to $50,000 5.00 -- -- -- --
- ----------------------------------------------------------------------------------
$50,000 to $100,000 4.00 -- -- -- --
- ----------------------------------------------------------------------------------
$100,000 to $250,000 3.00 -- -- -- --
- ----------------------------------------------------------------------------------
$250,000 to $500,000 2.00 -- -- -- --
- ----------------------------------------------------------------------------------
$500,000 to $1 million 1.75 -- -- -- --
- ----------------------------------------------------------------------------------
First $1 to $3 million 1.00(a) -- -- -- --
- ----------------------------------------------------------------------------------
Next $2 million 0.75(a) -- -- -- --
- ----------------------------------------------------------------------------------
Next $2 million 0.50(a) -- -- -- --
- ----------------------------------------------------------------------------------
Next $1 and above 0.25(a) -- -- -- --
- ----------------------------------------------------------------------------------
Annual fee 0.25 0.25 0.25 1.00 0.00
</TABLE>
Brokers for Portfolio Trades
When placing trades for the fund's portfolio, State Street Research chooses
brokers that provide the best execution (a term defined by service as well as
price), but may also consider a broker's sales of fund shares.
(a) If your financial professional declines this commission, the one-year CDSC
on your investment is waived.
<PAGE>
12 Buying and Selling Shares
- --------------------------------------------------------------------------------
(a) Except $500 during special promotional periods; contact your financial
professional.
[GRAPHIC] Policies for
Buying Shares
Once you have chosen a share class, the next step is to determine the amount you
want to invest.
Minimum Initial Investments:
o $10,000 for accounts that use the Investamatic program(a)
o $2,000 for Individual Retirement Accounts(a)
o $2,500 for all other accounts
Minimum Additional Investments:
o $50 for all other accounts
Complete the enclosed application. You can avoid future inconvenience by signing
up now for any services you might later use.
Timing of Requests All requests received in good order by State Street Research
before the close of regular trading on the New York Stock Exchange (usually 4:00
p.m. eastern time) will be executed the same day, at that day's closing share
price. Orders received thereafter will be executed the following day, at that
day's closing share price.
Wire Transactions Funds may be wired between 8:00 a.m. and 4:00 p.m. eastern
time. To make a same-day wire investment, please notify State Street Research by
12:00 noon of your intention to wire funds, and make sure your wire arrives by
4:00 p.m. If the New York Stock Exchange closes before 4:00 p.m. eastern time,
you may be unable to make a same-day wire investment. Your bank may charge a fee
for wiring money.
<PAGE>
Instructions for Buying Shares 13
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
To Open an Account To Add to an Account
<S> <C> <C>
[GRAPHIC] Through a Consult your financial professional or Consult your financial professional or
Professional your program materials. your program materials.
or Program
- ------------------------------------------------------------------------------------------------------------------------
By Mail [GRAPHIC] Make your check payable to "State Street Fill out an investment slip or indicate
Research Funds." Forward the check and the fund name and account number on your
your application to State Street check. Make your check payable to "State
Research. Street Research Funds." Forward the
check and slip to State Street Research.
- ------------------------------------------------------------------------------------------------------------------------
[GRAPHIC] By Federal Call to obtain an account number and Call State Street Research to obtain a
Funds Wire forward your application to State Street control number. Instruct your bank to
Research. Wire funds using the wire funds to:
instructions at right. o State Street Bank and Trust Company,
Boston, MA
o ABA: 011000028
o BNF: fund name and share class you
want to buy
o AC: 99029761
o OBI: your name and your account
number
o Control: the number given to you by
State Street Research
- ------------------------------------------------------------------------------------------------------------------------
By Electronic [GRAPHIC] Verify that your bank is a member of the Call State Street Research to verify
Funds Transfer ACH (Automated Clearing House) system. that the necessary bank information is
(ACH) Forward your application to State Street on file for your account. If it is, you
Research. Please be sure to include the may request a transfer with the same
appropriate bank information. Call State phone call. If not, please ask State
Street Research to request a purchase. Street Research to provide you with an
EZ Trader application.
- ------------------------------------------------------------------------------------------------------------------------
[GRAPHIC] By Investamatic Forward your application, with all Call State Street Research to verify
appropriate sections completed, to State that Investamatic is in place on your
Street Research, along with a check for account, or to request a form to add it.
your initial investment payable to Investments are automatic once
"State Street Research Funds." Investamatic is in place.
- ------------------------------------------------------------------------------------------------------------------------
By Exchange [GRAPHIC] Call State Street Research or visit our Call State Street Research or visit our
Web site. Web site.
- ------------------------------------------------------------------------------------------------------------------------
State Street Research Service Center PO Internet www.ssrfunds.com
Box 8408, Boston, MA 02266-8408
Call toll-free: 1-800-562-0032 (business
days 8:00 a.m. - 6:00 p.m., eastern
time)
</TABLE>
<PAGE>
14 Your Investment continued
- --------------------------------------------------------------------------------
[GRAPHIC] Policies for
Selling Shares
Circumstances that Require Written Requests Please submit instructions in
writing when any of the following apply:
o you are selling more than $100,000 worth of shares
o the name or address on the account has changed within the last 30 days
o you want the proceeds to go to a name or address not on the account
registration
o you are transferring shares to an account with a different registration or
share class
o you are selling shares held in a corporate or fiduciary account; for these
accounts, additional documents are required:
corporate accounts: certified copy of a corporate resolution
fiduciary accounts: copy of power of attorney or other governing document
To protect your account against fraud, all signatures on these documents must be
guaranteed. You may obtain a signature guarantee at most banks and securities
dealers. A notary public cannot provide a signature guarantee.
Incomplete Sell Requests State Street Research will attempt to notify you
promptly if any information necessary to process your request is missing.
Timing of Requests All requests received in good order by State Street Research
before the close of regular trading on the New York Stock Exchange (usually 4:00
p.m. eastern time) will be executed the same day, at that day's closing share
price. Requests received thereafter will be executed the following day, at that
day's closing share price.
Wire Transactions Proceeds sent by federal funds wire must total at least
$5,000. A fee of $7.50 will be deducted from all proceeds sent by wire, and your
bank may charge an additional fee to receive wired funds.
Selling Recently Purchased Shares If you sell shares before the check or
electronic funds transfer (ACH) for those shares has been collected, you will
not receive the proceeds until your initial payment has cleared. This may take
up to 15 days after your purchase was recorded (in rare cases, longer). If you
open an account with shares purchased by wire, you cannot sell those shares
until your application has been processed.
<PAGE>
Instructions for Selling Shares 15
- --------------------------------------------------------------------------------
[GRAPHIC] Through a Consult your financial professional or your
Professional program materials.
or Program
- --------------------------------------------------------------------------------
By Mail [GRAPHIC] Send a letter of instruction, an endorsed stock
power or share certificates (if you hold
certificate shares) to State Street Research.
Specify the fund, the account number and the
dollar value or number of shares. Be sure to
include all necessary signatures and any
additional documents, as well as signature
guarantees if required (see facing page).
- --------------------------------------------------------------------------------
[GRAPHIC] By Federal Check with State Street Research to make sure that
Funds Wire a wire redemption privilege, including a bank
designation, is in place on your account. Once
this is established, you may place your request to
sell shares with State Street Research. Proceeds
will be wired to your pre-designated bank account.
(See "Wire Transactions" on facing page.)
- --------------------------------------------------------------------------------
By Electronic [GRAPHIC] Check with State Street Research to make sure that
Funds Transfer the EZ Trader feature, including a bank
(ACH) designation, is in place on your account. Once
this is established, you may place your request to
sell shares with State Street Research. Proceeds
will be sent to your pre-designated bank account.
- --------------------------------------------------------------------------------
[GRAPHIC] By Telephone As long as the transaction does not require a
written request (see facing page), you or your
financial professional can sell shares by calling
State Street Research. A check will be mailed to
your address of record on the following business
day.
- --------------------------------------------------------------------------------
By Exchange [GRAPHIC] Read the prospectus for the fund into which you
are exchanging. Call State Street Research or
visit our Web site.
- --------------------------------------------------------------------------------
[GRAPHIC] By Systematic See plan information on page 19.
Withdrawal Plan
State Street Research Service Center PO Box 8408, Internet www.ssrfunds.com.
Boston, MA 02266-8408
Call toll-free: 1-800-562-0032 (business days 8:00
a.m. - 6:00 p.m., eastern time)
<PAGE>
16 Your Investment continued
- --------------------------------------------------------------------------------
[GRAPHIC] Account Policies
Telephone Requests When you open an account you automatically receive telephone
privileges, allowing you to place requests for your account by telephone. Your
financial professional can also use these privileges to request exchanges on
your account and, with your written permission, redemptions. For your
protection, all telephone calls are recorded.
As long as State Street Research takes certain measures to authenticate
telephone requests on your account, you may be held responsible for unauthorized
requests. Unauthorized telephone requests are rare, but if you want to protect
yourself completely, you can decline the telephone privilege on your
application. The fund may suspend or eliminate the telephone privilege at any
time.
Exchange Privileges There is no fee to exchange shares among State Street
Research funds. Your new fund shares will be the equivalent class of your
current shares. Any contingent deferred sales charges will continue to be
calculated from the date of your initial investment.
You must hold Class A shares of any fund for at least 30 days before you may
exchange them for Class A shares of a different fund with a higher applicable
sales charge.
Frequent exchanges can interfere with fund management and drive up costs for all
shareholders. Because of this, the fund currently limits each account, or group
of accounts under common ownership or control, to six exchanges per calendar
year. The fund may change or eliminate the exchange privilege at any time, may
limit or cancel any shareholder's exchange privilege and may refuse to accept
any exchange request, particularly those associated with "market timing"
strategies.
For Merrill Lynch customers, exchange privileges extend to Summit Cash Reserves
Fund, which is related to the fund for purposes of investment and investor
services.
Accounts with Low Balances If the value of your account falls below $1,500,
State Street Research may mail you a notice asking you to bring the account back
up to $1,500 or close it out. If you do not take action within 60 days, State
Street Research may either sell your shares and mail the proceeds to you at the
address of record or, depending on the circumstances, may deduct an annual
maintenance fee (currently $18).
<PAGE>
17
--------
The Fund's Business Hours The fund is open the same days as the New York Stock
Exchange (generally Monday through Friday). Fund representatives are available
from 8:00 a.m. to 6:00 p.m. eastern time on these days.
Calculating Share Price The fund calculates its net asset value per share (NAV)
every business day at the close of regular trading on the New York Stock
Exchange (but not later than 4:00 p.m. eastern time). NAV is calculated by
dividing the fund's net assets by the number of existing shares.
In calculating its NAV, the fund uses the last reported sale price or quotation
for portfolio securities. However, in cases where these are unavailable, or when
the investment manager believes that subsequent events have rendered them
unreliable, the fund may use fair-value estimates instead.
Because foreign securities markets are sometimes open on different days from
U.S. markets, there may be instances when the value of the fund's portfolio
changes on days when you cannot buy or sell fund shares.
Reinstating Recently Sold Shares
For 120 days after you sell shares, you have the right to "reinstate" your
investment by putting some or all of the proceeds into any currently available
State Street Research fund at net asset value. Any CDSC you paid on the amount
you are reinstating will be credited to your account. You may only use this
privilege once in any twelve-month period with respect to your shares of a given
fund.
Additional Policies Please note that the fund maintains additional policies and
reserves certain rights, including:
o Requirements for initial or additional investments, reinvestments, periodic
investment plans, retirement and employee benefit plans, sponsored
arrangements and other similar programs, may be changed from time to
time--without further notice or supplement to this prospectus
o All orders to purchase shares are subject to acceptance by the fund
o At any time, the fund may change or discontinue its sales charge waivers
and any of its order acceptance practices, and may suspend the sale of its
shares
o The fund may delay sending you redemption proceeds for up to seven days, or
longer if permitted by the SEC
o To permit investors to obtain the current price, dealers are responsible
for transmitting all orders to the State Street Research Service Center
promptly
<PAGE>
18 Your Investment continued
- --------------------------------------------------------------------------------
[GRAPHIC] Tax Considerations
Unless your investment is in a tax-deferred account, you may want to avoid:
o investing a large amount in the fund close to the end of the fiscal year or
a calendar year (if the fund makes a capital gains distribution, you will
receive some of your investment back as a taxable distribution)
o selling shares at a loss for tax purposes and investing in a substantially
identical investment within 30 days before or after such sale (such a
transaction is usually considered a "wash sale," and you will not be
allowed to claim a tax loss)
[GRAPHIC] Distributions and Taxes
Income and Capital Gains Distributions The fund typically distributes its net
income and net capital gains, if any, around the end of the fund's fiscal year,
which is April 30. To comply with tax regulations, the fund may also pay an
additional capital gains distribution in December.
You may have your distributions reinvested in the fund, invested in a different
State Street Research fund, deposited in a bank account or mailed out by check.
If you do not give State Street Research other instructions, your distributions
will automatically be reinvested in the fund.
Tax Effects of Distributions and Transactions In general, any dividends and
short-term capital gains distributions you receive from the fund are taxable as
ordinary income. Distributions of long-term capital gains are generally taxable
as capital gains -- in most cases, at a different rate from that which applies
to ordinary income.
The tax you pay on a given capital gains distribution generally depends on how
long the fund has held the portfolio securities it sold. It does not depend on
how long you have owned your fund shares or whether you reinvest your
distributions.
Every year, the fund will send you information detailing the amount of ordinary
income and capital gains distributed to you for the previous year.
<PAGE>
19
--------
The sale of shares in your account may produce a gain or loss, and is a taxable
event. For tax purposes, an exchange is the same as a sale.
Your investment in the fund could have additional tax consequences. Please
consult your tax professional for assistance.
Backup Withholding By law, the fund must withhold 31% of your distributions and
proceeds if you have not provided complete, correct taxpayer information.
[GRAPHIC] Investor Services
Investamatic Program Use Investamatic to set up regular automatic investments in
the fund from your bank account. You determine the frequency and amount of your
investments.
Systematic Withdrawal Plan
This plan is designed for retirees and other investors who want regular
withdrawals from a fund account. The plan is free and allows you to withdraw up
to 12% of your fund assets a year (minimum $50 per withdrawal) without incurring
any contingent deferred sales charges. Certain terms and minimums apply.
EZ Trader This service allows you to purchase or sell fund shares over the
telephone through the ACH (Automated Clearing House) system.
Dividend Allocation Plan This plan automatically invests your distributions from
the fund into another fund of your choice, without any fees or sales charges.
Automatic Bank Connection This plan lets you route any distributions or
Systematic Withdrawal Plan payments directly to your bank account.
Retirement Plans State Street Research also offers a full range of prototype
retirement plans for individuals, sole proprietors, partnerships, corporations
and employees.
Call 1-800-562-0032 for information on any of the services described above.1718
<PAGE>
20 Other Information
- --------------------------------------------------------------------------------
[GRAPHIC] Other Securities
and Risks
Each of the fund's portfolio securities and investment practices offers certain
opportunities and carries various risks. Major investments and risk factors are
outlined in the fund description starting on page 2. Below are brief
descriptions of other securities and practices, along with their associated
risks.
Restricted and Illiquid Securities Any securities that are thinly traded or
whose resale is restricted can be difficult to sell at a desired time and price.
Some of these securities are new and complex, and trade only among institutions;
the markets for these securities are still developing, and may not function as
efficiently as established markets. Owning a large percentage of restricted and
illiquid securities could hamper the fund's ability to raise cash to meet
redemptions. Also, because there may not be an established market price for
these securities, the fund may have to estimate their value, which means that
their valuation (and, to a much smaller extent, the valuation of the fund) may
have a subjective element.
International Exposure Many U.S. companies in which the fund may invest generate
significant revenues and earnings from abroad. As a result, these companies and
the prices of their securities may be affected by weaknesses in global and
regional economies and the relative value of foreign currencies to the U.S.
dollar. These factors, taken as a whole, could adversely affect the price of
fund shares.
Foreign Investments Foreign securities are generally more volatile than their
domestic counterparts, in part because of higher political and economic risks,
lack of reliable information and fluctuations in currency exchange rates. These
risks are usually higher in less developed countries. The fund may use foreign
currencies and related instruments to hedge its foreign investments.
In addition, foreign securities may be more difficult to resell and the markets
for them less efficient than for comparable U.S. securities. Even where a
foreign security increases in price in its local currency, the appreciation may
be diluted by the negative effect of exchange rates when the security's value is
converted to U.S. dollars. Foreign withholding taxes also may apply and errors
and delays may occur in the settlement process for foreign securities.
Derivatives Derivatives, a category that includes options and futures, are
financial instruments whose value derives from another security, an
<PAGE>
21
--------
index or a currency. The fund may use derivatives for hedging (attempting to
offset a potential loss in one position by establishing an interest in an
opposite position). This includes the use of currency-based derivatives for
hedging its positions in foreign securities. The fund may also use derivatives
for speculation (investing for potential income or capital gain).
While hedging can guard against potential risks, it adds to the fund's expenses
and can eliminate some opportunities for gains. There is also a risk that a
derivative intended as a hedge may not perform as expected.
The main risk with derivatives is that some types can amplify a gain or loss,
potentially earning or losing substantially more money than the actual cost of
the derivative.
With some derivatives, whether used for hedging or speculation, there is also
the risk that the counterparty may fail to honor its contract terms, causing a
loss for the fund.
Securities Lending The fund may seek additional income by lending portfolio
securities to qualified institutions. By reinvesting any cash collateral it
receives in these transactions, the fund could realize additional gains or
losses. If the borrower fails to return the securities and the invested
collateral has declined in value, the fund could lose money.
Bonds The value of any bonds held by the fund is likely to decline when interest
rates rise; this risk is greater for bonds with longer maturities. A less
significant risk is that a bond issuer could default on principal or interest
payments, causing a loss for the fund. However, junk bonds (those in rating
categories below BBB/Baa) have a higher risk of default than investment grade
bonds, and their market prices can be more volatile.
When-issued Securities The fund may invest in securities prior to their date of
issue. These securities could fall in value by the time they are actually
issued, which may be any time from a few days to over a year.
Defensive Investing During unusual market conditions, the fund may place up to
100% of total assets in cash or high-quality, short-term debt securities. To the
extent that the fund does this, it is not pursuing its goal.
Year 2000 The investment manager does not currently anticipate that computer
problems related to the year 2000 will have a material effect on the fund.
However, there can be no assurances in this area, including the possibility that
year 2000 computer problems could negatively affect communications systems,
investment markets or the economy in general.
<PAGE>
22 Financial Highlights
- --------------------------------------------------------------------------------
These highlights are intended to help you understand the fund's performance
since its inception. The information in these tables has been audited by
PricewaterhouseCoopers LLP, the fund's independent accountants. Their report and
the fund's financial statements are included in the fund's annual report, which
is available upon request. Total return figures assume reinvestment of all
distributions.
<TABLE>
<CAPTION>
Class A Class B(1) Class B
-------------------- -------------------- ----------------------
Years ended April 30 Years ended April 30 Years ended April 30
-------------------- -------------------- ----------------------
Per Share Data 1998(a)(b) 1999(a) 1999(a)(f) 1998(a)(b) 1999(a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.55 9.92 10.63 9.55 9.90
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) ($)* 0.01 (0.01) (0.03) (0.00) (0.09)
Net realized and unrealized gain (loss) on investments,
foreign currency contracts and futures contracts($) 0.36 1.82 1.03 0.35 1.82
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 0.37 1.81 1.00 0.35 1.73
- ------------------------------------------------------------------------------------------------------------------------------------
Dividend from net investment income ($) -- (0.00) (0.00) -- (0.00)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions ($) -- (0.00) (0.00) -- (0.00)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 9.92 11.73 11.63 9.90 11.63
==== ===== ===== ==== =====
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%)(c) 3.87(d) 18.28 9.44(d) 3.66(d) 17.50
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 6,132 16,220 1,776 5,142 19,300
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio (%)* 1.25(e) 1.27 2.02(e) 2.00(e) 2.02
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%)* 0.45(e) (0.09) (1.01)(e) (0.31)(e) (0.84)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 13.04 134.16 134.16 13.04 134.16
- ------------------------------------------------------------------------------------------------------------------------------------
* Reflects voluntary reduction of expenses
per share of these amounts ($) 0.03 0.08 0.02 0.03 0.08
</TABLE>
<PAGE>
23
--------
<TABLE>
<CAPTION>
Class C Class S
------------------------- ------------------------
Years ended April 30 Years ended April 30
------------------------- ------------------------
Per Share Data 1998(a)(b) 1999(a) 1998(a)(b) 1999(a)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.55 9.91 9.55 9.92
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) ($)* (0.00) (0.09) 0.02 0.02
Net realized and unrealized gain (loss) on investments,
foreign currency, forward contracts and futures contracts ($) 0.36 1.81 0.35 1.82
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 0.36 1.72 0.37 1.84
- ---------------------------------------------------------------------------------------------------------------------------------
Dividend from net investment income ($) -- (0.00) -- (0.00)
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions ($) -- (0.00) -- (0.00)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 9.91 11.63 9.92 11.76
==== ===== ==== =====
- ---------------------------------------------------------------------------------------------------------------------------------
Total return (%)(c) 3.77(d) 17.36 3.87(d) 18.59
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 1,061 3,667 4,763 5,806
- ---------------------------------------------------------------------------------------------------------------------------------
Expense ratio (%)* 2.00(e) 2.02 1.00(e) 1.02
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%)* (0.13)(e) (0.85) 0.98(e) 0.18(e)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 13.04 134.16 13.04 134.16
- ---------------------------------------------------------------------------------------------------------------------------------
* Reflects voluntary reduction of expenses
per share of these amounts ($) 0.04 0.08 0.06 0.08
</TABLE>
- --------------------------------------------------------------------------------
(a) Per-share figures have been calculated using the average shares method.
(b) March 11, 1998 (commencement of operations) to April 30, 1998.
(c) Does not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily reduced the fund's expenses.
(d) Not annualized.
(e) Annualized.
(f) January 1, 1999 (commencement of share class) to April 30, 1999.
<PAGE>
24 Board of Trustees
- --------------------------------------------------------------------------------
[GRAPHIC] The Board of Trustees is responsible for the operation of the fund.
They establish the fund's major policies, review investments, and
provide guidance to the investment manager and others who provide services to
the fund. The Trustees have diverse backgrounds and substantial experience in
business and other areas.
Ralph F. Verni
Chairman of the Board, President,
Chief Executive Officer and Director,
State Street Research & Management
Company
Bruce R. Bond
Chairman of the Board, Chief Executive
Officer and President,
PictureTel Corporation
Steve A. Garban
Former Senior Vice President for Finance
and Operations and Treasurer,
The Pennsylvania State University
Malcolm T. Hopkins
Former Vice Chairman of the Board
and Chief Financial Officer,
St. Regis Corp.
Dean O. Morton
Former Executive Vice President,
Chief Operating Officer and Director,
Hewlett-Packard Company
Susan M. Phillips
Dean, School of Business and Public
Management, George Washington
University; former Member of the Board of
Governors of the Federal Reserve System
and Chairman and Commissioner of the
Commodity Futures Trading Commission
Toby Rosenblatt
President, Founders Investment Ltd,
President,The Glen Ellen Company.
Michael S. Scott Morton
Jay W. Forrester Professor of
Management, Sloan School of
Management, Massachusetts
Institute of Technology
<PAGE>
25 Notes
- --------------------------------------------------------------------------------
<PAGE>
For Additional Information
- --------------------------------------------------------------------------------
If you have questions about the fund or would like to request a free copy of the
current annual/semiannual report or SAI, contact State Street Research or your
financial professional.
[GRAPHIC] STATE STREET RESEARCH
Service Center
P.O. Box 8408, Boston, MA 02266
Telephone: 1-800-562-0032
Internet: www.ssrfunds.com
You can also obtain information about the fund, including the SAI and certain
other fund documents, on the Internet at www.sec.gov, in person at the SEC's
Public Reference Room in Washington, DC (telephone 1-800-SEC-0330) or by mail by
sending your request, along with a duplicating fee, to the SEC's Public
Reference Section, Washington, DC 20549-6009.
You can find additional information on the fund's structure and its performance
in the following documents:
Annual/Semiannual Reports While the prospectus describes the fund's potential
investments, these reports detail the fund's actual investments as of the report
date. Reports include a discussion by fund management of recent economic and
market trends and fund performance. The annual report also includes the report
of the fund's independent accountants.
Ticker Symbols
- --------------------------------------------------------------------------------
Class A (proposed) SGALX
Class B (proposed) SGBLX
Class B(1) (proposed) SGLPX
Class C (proposed) SGLCX
Class S (proposed) SGLSX
Statement of Additional Information (SAI)
A supplement to the prospectus, the SAI contains further information about the
fund and its investment limitations and policies. A current SAI for this fund is
on file with the Securities and Exchange Commission and is incorporated by
reference (is legally part of this prospectus).
prospectus
- --------------------------------------------------------------------------------
SEC File Number: 811-8322
GA-168G-0999
Control Number: (exp0900)SSR-LD
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
for
STATE STREET RESEARCH STRATEGIC INCOME FUND
STATE STREET RESEARCH LEGACY FUND
STATE STREET RESEARCH GALILEO FUND
Series of State Street Research Securities Trust
September 1, 1999
This Statement of Additional Information is divided into three sections.
Section One contains definitions that are used in the Statement of Additional
Information. Section Two contains information which is specific to each fund
identified above. Section Three contains information which generally is shared
by certain mutual funds of the State Street Research complex, including the
funds specified above.
The Statement of Additional Information is not a Prospectus. It should
be read in conjunction with current Prospectuses of each fund specified above.
The date of the current prospectus of each fund specified above is:
State Street Research Strategic Income Fund September 1, 1999
State Street Research Legacy Fund September 1, 1999
State Street Research Galileo Fund September 1, 1999
Each Prospectus may be obtained without charge from State Street
Research Investment Services, Inc., One Financial Center, Boston, Massachusetts
02111-2690 or by calling 1-800-562-0032.
Financial statements for each fund specified above, as of and for the
most recently completed fiscal year are included in its Annual Report to
Shareholders for that year. Such financial statements include the Schedule of
the Investment Portfolio, Statement of Assets and Liabilities, Statement of
Operations, Statement of Changes in Net Assets and include any notes thereto,
and Financial Highlights or Report of Independent Accountants, and Management's
Discussion of Fund Performance and Report on Special Meeting of Shareholders.
Such financial statements are hereby incorporated by reference from the
following Annual Reports. Shareholder reports are available without charge upon
request. For more information, call the State Street Research Service Center at
1-800-562-0032.
<TABLE>
<CAPTION>
EDGAR
Fund Fiscal Year Ended Accession Number
- ---- ----------------- ----------------
<S> <C> <C>
State Street Research Strategic Income Fund April 30, 1999 0000950146-99-001349
State Street Research Legacy Fund April 30, 1999
State Street Research Galileo Fund April 30, 1999
</TABLE>
Control Number: (EXP00900) SSR-LD SSR-227G-0999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION I............................................................................ I, 1-1
Definitions.................................................................. I, 1-1
SECTION II........................................................................... II, 1-1
1. STATE STREET RESEARCH STRATEGIC INCOME FUND............................... II, 1-1
A. The Fund........................................................... II, 1-1
B. Investment Objective............................................... II, 1-1
C. Fundamental and Nonfundamental Restrictions........................ II, 1-1
D. Restricted Securities.............................................. II, 1-4
E. Foreign Investments................................................ II, 1-4
F. Industry Classifications........................................... II, 1-4
G. Control Persons and Principal Holders of Securities................ II, 1-6
H. Trustee Compensation............................................... II, 1-7
I. Investment Advisory Fee............................................ II, 1-7
J. Portfolio Turnover................................................. II, 1-8
K. Brokerage Commissions.............................................. II, 1-8
L. Sales Charges on Shares............................................ II, 1-9
M. Rule 12b-1 Fees.................................................... II, 1-10
N. Performance........................................................ II, 1-11
2. STATE STREET RESEARCH LEGACY FUND......................................... II, 2-1
A. The Fund........................................................... II, 2-1
B. Investment Objective............................................... II, 2-1
C. Fundamental and Nonfundamental Restrictions........................ II, 2-1
D. Restricted Securities.............................................. II, 2-4
E. Foreign Investments................................................ II, 2-4
F. Industry Classifications........................................... II, 2-4
G. Control Persons and Principal Holders of Securities................ II, 2-6
H. Trustee Compensation............................................... II, 2-7
I. Investment Advisory Fee............................................ II, 2-7
J. Portfolio Turnover................................................. II, 2-8
K. Brokerage Commissions.............................................. II, 2-8
L. Sales Charges on Shares............................................ II, 2-9
M. Rule 12b-1 Fees.................................................... II, 2-10
N. Performance........................................................ II, 2-11
3. STATE STREET RESEARCH GALILEO FUND........................................ II, 3-1
A. The Fund........................................................... II, 3-1
B. Investment Objective............................................... II, 3-1
C. Fundamental and Nonfundamental Restrictions........................ II, 3-1
D. Restricted Securities.............................................. II, 3-4
E. Foreign Investments................................................ II, 3-4
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
F. Industry Classifications........................................... II, 3-4
G. Control Persons and Principal Holders of Securities................ II, 3-6
H. Trustee Compensation............................................... II, 3-7
I. Investment Advisory Fee............................................ II, 3-7
J. Portfolio Turnover................................................. II, 3-8
K. Brokerage Commissions.............................................. II, 3-8
L. Sales Charges on Shares............................................ II, 3-9
M. Rule 12b-1 Fees.................................................... II, 3-10
N. Performance........................................................ II, 3-11
SECTION III.......................................................................... III-1
A. Additional Information Concerning Investment Restrictions, Certain Risks
and Investment Techniques................................................. III-1
B. Debt Instruments and Permitted Cash Investments........................... III-13
C. The Trusts, the Trustees and Officers and Fund Shares..................... III-22
D. Investment Advisory Services.............................................. III-31
E. Purchase and Redemption of Shares......................................... III-32
F. Shareholder Accounts...................................................... III-39
G. Net Asset Value........................................................... III-44
H. Portfolio Transactions.................................................... III-45
I. Certain Tax Matters....................................................... III-48
J. Distribution of Fund Shares............................................... III-52
K. Calculation of Performance Data........................................... III-55
L. Custodian................................................................. III-58
M. Independent Accountants................................................... III-58
N. Financial Statements...................................................... III-58
</TABLE>
(ii)
<PAGE>
SECTION I
---------
Definitions
- -----------
Each of the following terms used in this Statement of Additional
Information has the meaning set forth below.
"1940 Act" means the Investment Company Act of 1940, as amended.
"Distributor" means State Street Research Investment Services, Inc., One
Financial Center, Boston, Massachusetts 02111-2690.
"Investment Manager" means State Street Research & Management Company, One
Financial Center, Boston, Massachusetts 02111-2690.
"Metropolitan" means Metropolitan Life Insurance Company.
"NYSE" means the New York Stock Exchange, Inc.
"Vote of the majority of the outstanding voting securities" means the vote, at
the annual or a special meeting of security holders duly called, (i) of 67% or
more of the voting securities present at the meeting if the holders of more than
50% of the outstanding voting securities are present or represented by proxy or
(ii) of more than 50% of the outstanding voting securities, whichever is less.
I, 1-1
<PAGE>
SECTION II
----------
1. STATE STREET RESEARCH STRATEGIC INCOME FUND
The information in this part 1 of Section II relates only to State
Street Research Strategic Income Fund (the "Strategic Income Fund"). For
information on other funds, see the Table of Contents.
A. The Fund
The Fund was organized in 1996 as a separate series of the State Street
Research Securities Trust, a Massachusetts business trust (the "Trust"). A
"series" is a separate pool of assets of the Trust which is separately managed
and may have a different investment objective and different investment policies
from the objective and policies of another series. The Trust is currently
comprised of the following series: State Street Research Strategic Income Fund,
State Street Research Legacy Fund and State Street Research Galileo Fund.
The Fund is an "open-end" management investment company and is a
"diversified company" as those terms are defined in the 1940 Act. Among other
things, a diversified fund must, with respect to 75% of its total assets, not
invest more than 5% of its total assets in any one issuer.
Under the Trust's Master Trust Agreement, the Trustees may reorganize,
merge or liquidate the Fund without prior shareholder approval.
B. Investment Objective
The investment objective of Strategic Income Fund is a fundamental
policy and may only be changed by the affirmative vote of a majority of the
outstanding voting securities of the Fund.
C. Fundamental and Nonfundamental Restrictions
The Strategic Income Fund has adopted the following investment
restrictions, and those investment restrictions are either fundamental or not
fundamental. Fundamental restrictions may not be changed except by the
affirmative vote of a majority of the outstanding voting securities of the
Strategic Income Fund. Restrictions that are not fundamental may be changed
without a shareholder vote.
The fundamental and nonfundamental policies of the Fund do not apply to
any matters involving the issuance of multiple classes of shares of the Fund or
the creation or use of structures (e.g. fund or funds, master-feeder structure)
allowing the Fund to invest substantially all its assets in collective
investment vehicles or allowing the Fund to serve as
II, 1-1
<PAGE>
such a collective investment vehicle for other funds, to the extent permitted by
law and regulatory authorities.
Fundamental Investment Restrictions.
It is the Strategic Income Fund's policy:
(1) not to purchase a security of any one issuer (other than
securities issued or guaranteed as to principal or interest by
the U.S. Government or its agencies or instrumentalities or
mixed-ownership Government corporations or sponsored enterprises)
if such purchase would, with respect to 75% of the Strategic
Income Fund's total assets, cause more than 5% of the Strategic
Income Fund's total assets to be invested in the securities of
such issuer or cause more than 10% of the voting securities of
such issuer to be held by the Strategic Income Fund;
(2) not to issue senior securities as defined in the 1940 Act, except
as permitted by that Act and the rules thereunder or as permitted
by the Securities and Exchange Commission (the creation of
general liens or security interests under industry practices for
transactions in portfolio assets are not deemed to involve the
issuance of senior securities);
(3) not to underwrite or participate in the marketing of securities
of other issuers, except (a) the Strategic Income Fund may,
acting alone or in syndicates or groups, purchase or otherwise
acquire securities of other issuers for investment, either from
the issuers or from persons in a control relationship with the
issuers or from underwriters of such securities; and (b) to the
extent that, in connection with the disposition of the Strategic
Income Fund's securities, the Strategic Income Fund may be a
selling shareholder in an offering or deemed to be an underwriter
under certain federal securities laws;
(4) not to purchase fee simple interests in real estate unless
acquired as a result of ownership of securities or other
instruments, although the Strategic Income Fund may purchase and
sell other interests in real estate including securities which
are secured by real estate, or securities of companies which make
real estate loans or own, or invest or deal in, real estate;
(5) not to invest in physical commodities or physical commodity
contracts or options in excess of 10% of the Strategic Income
Fund's total assets, except that investments in essentially
financial items or arrangements such as, but not limited to, swap
arrangements, hybrids, currencies, currency and other forward
contracts, delayed delivery and when-issued contracts, futures
contracts and options on futures contracts on securities,
securities indices, interest rates and currencies shall not be
deemed investments in commodities or commodities contracts;
II, 1-2
<PAGE>
(6) not to lend money; however, the Strategic Income Fund may lend
portfolio securities and purchase bonds, debentures, notes, bills
and any other debt related instruments or interests (and enter
into repurchase agreements with respect thereto);
(7) not to make any investment which would cause more than 25% of the
value of the Strategic Income Fund's total assets to be invested
in securities of nongovernment-related issuers principally
engaged in any one industry, as described in the Strategic Income
Fund's Prospectus or Statement of Additional Information as
amended from time to time; and
(8) not to borrow money, including reverse repurchase agreements in
so far as such agreements may be regarded as borrowings, except
for borrowings not in an amount in excess of 331/3% of the value
of its total assets.
Nonfundamental Investment Restrictions.
It is the Strategic Income Fund's policy:
(1) not to purchase any security or enter into a repurchase agreement
if as a result more than 15% of its net assets would be invested
in securities that are illiquid (including repurchase agreements
not entitling the holder to payment of principal and interest
within seven days);
(2) not to engage in transactions in options except in connection
with options on securities, securities indices, currencies and
interest rates, and options on futures on securities, securities
indices, currencies and interest rates;
(3) not to purchase securities on margin or make short sales of
securities or maintain a short position except for short sales
"against the box" (for the purpose of this restriction, escrow or
custodian receipts or letters, margin or safekeeping accounts, or
similar arrangements used in the industry in connection with the
trading of futures, options and forward commitments are not
deemed to involve the use of margin); and
(4) not to purchase a security issued by another investment company,
except to the extent permitted under the 1940 Act or except by
purchases in the open market involving only customary brokers'
commissions, or securities acquired as dividends or distributions
or in connection with a merger, consolidation or similar
transaction or other exchange.
II, 1-3
<PAGE>
D. Restricted Securities
It is the Fund's policy not to make an investment in restricted
securities, including Rule 144A Securities, if, as a result, more than 50% of
the Fund's total assets are invested in restricted securities, provided not more
than 10% of the Fund's total assets are invested in restricted securities other
than Rule 144A Securities.
E. Foreign Investments
Under current policy, the Fund expects to invest predominantly in
investment grade debt of issuers in developed nations, although no limits apply
as to quality or geography.
F. Industry Classifications
In determining how much of each Fund's portfolio is invested in a given
industry, the following industry classifications are currently used. Securities
issued or guaranteed as to principal or interest by the U.S. Government or its
agencies or instrumentalities or mixed-ownership Government corporations or
sponsored enterprises (including repurchase agreements involving U.S. Government
securities to the extent excludable under relevant regulatory interpretations)
are excluded. Securities issued by foreign governments are also excluded.
Companies engaged in the business of financing may be classified according to
the industries of their parent or sponsor companies or industries that otherwise
most affect such financing companies. Issuers of asset-backed pools will be
classified as separate industries based on the nature of the underlying assets,
such as mortgages and credit card receivables. "Asset-backed-Mortgages" includes
private pools of nongovernment backed mortgages.
Collateralized Mortgage Obligations
- -----------------------------------
Whole Loan
Commercial Loan
Project Loan
Asset-Backed Securities
- -----------------------
Auto
Auto Dealerships
Credit Cards
Equipment
Home Equity
Manufactured Housing
Recreational Vehicles
Rate Reduction
Other
Corporate
- ---------
Automotive
Beverages & Bottling
Cable: Developmental
Cable: US/Canada
Casino: (Atlantic City,
Las Vegas, Emerging
Mkt.)
Chemicals
Communications: Fixed
Communications: Mobile
Drug Stores
II, 1-4
<PAGE>
Energy: Exploration &
Production
Energy: Energy/Services
Energy: Other
Energy: Refining
Financial: Service/Other
Financial: Specialty
Food
Gen. Industrial: Other
Manufacturing
Gen. Industrial: Textile
Gen. Industrial:
Aerospace
Gen. Industrial: Capital
Goods
Healthcare: Acute Care
Healthcare: Equip./Labs/
Pharmaceuticals
Healthcare: Long Term
Care
Healthcare: Specialty Care
Hotels/Lodging
Leisure: Film Exhibition
Leisure: Other
Media: Broadcasting/
Advertising
Media: Other
Media: Publishing &
Printing
Metals: Other Manufacturing
Metals: Other Related
Metals: Steel
Manufacturing
Metals: Steel Related
Manufacturing:
Consumer: Durable
Manufacturing:
Consumer: Nondurable
Paper & Packaging:
Packaging
Paper & Packaging: Paper
Real Estate: Development
Real Estate: Material
Restaurants
Retailing
Services
Supermarkets
Technology
Transportation: Air
Transportation: Land
Transportation: Other
Transportation: Sea
Utility
Utility: Independent Power
Provider
Yankee Bonds
II, 1-5
<PAGE>
G. Control Persons and Principal Holders of Securities
Trustees and Officers
The Trustees and principal officers of State Street Research Securities
Trust as a group owned less than 1% of the Strategic Income Fund's outstanding
Class A shares, and no shares of the fund's outstanding Class B(1), Class B,
Class C or Class S shares. All information is as of July 31, 1999.
Other Persons
The following persons or entities were the record and/or beneficial
owners of the following approximate percentages of the Strategic Income Fund's
outstanding shares. Except as otherwise stated, the Strategic Income Fund
believes that each named record holder does not have beneficial ownership of
such shares. All information is as of July 31, 1999.
<TABLE>
<CAPTION>
Shareholder %
----------- ---
<S> <C> <C>
Class A Metropolitan Life 23.2
Class B(1) Merrill Lynch 15.3
Metropolitan Life 8.4
Class B Merrill Lynch 26.9
Class C Merrill Lynch 39.7
Class S Metropolitan Life 76.7
Andover Newton
Theological School 11.2
State Street Bank, Trustee
for Billy Graham
Evangelical Assoc. 1994
Pension Plan 10.4
</TABLE>
The full name and address of each of the above persons or entities are as
follows:
Metropolitan Life Insurance Company(a)
One Madison Avenue
New York, NY 10010
Merrill Lynch, Pierce, Fenner & Smith(b)
One Liberty Plaza
165 Broadway Plaza
New York, NY 10080
Andover Newton Theological School
c/o State Street Research Service Center
One Financial Center
Boston, MA 02111
State Street Bank and Trust Company(b)
225 Franklin Street
Boston, MA 02110
(a) Metropolitan, a New York Corporation, was the record owner and/or
beneficial owner, directly or indirectly through its subsidiaries or
affiliates, of such shares.
(b) The fund believes that each named record holder does not have beneficial
ownership of such shares.
Ownership of 25% or more of a voting security is deemed "control" as
defined in the 1940 Act. So long as 25% of a class of shares is so owned, such
owners will be presumed to be in control of such class of shares for purposes of
voting on certain matters submitted to a vote of shareholders of that class.
II, 1-6
<PAGE>
H. Trustee Compensation
The Trustees of State Street Research Securities Trust were compensated
as follows:
<TABLE>
<CAPTION>
Total Total Compensation
Compensation From All State
Aggregate From All Street Research Funds
Compensation State Street and Metropolitan
From Strategic Research Funds Series Fund, Inc.
Name of Trustee Income Fund(b) Paid to Trustees (c) Paid to Trustees (d)
- --------------- -------------- -------------------- --------------------
<S> <C> <C> <C>
Bruce R. Bond(a) $ 375 $ 0 $ 0
Steven A. Garban $2,300 $81,300 $110,300
Malcolm T. Hopkins $1,900 $69,700 $ 97,200
Dean O. Morton $2,400 $84,700 $110,700
Susan M. Phillips(a) $ 0 $12,145 $ 12,145
Toby Rosenblatt $2,000 $72,600 $ 72,600
Michael S. Scott Morton $2,600 $89,500 $115,500
Ralph F. Verni $ 0 $ 0 $ 0
</TABLE>
- ---------------
(a) Bruce Bond and Susan Phillips were elected as Trustees of State Street
Research Securities Trust on January 1, 1999 and April 6, 1999,
respectively, and therefore did not receive any compensation from the
Strategic Income Fund for the year ended December 31, 1998.
(b) For the Strategic Income Fund's fiscal year ended April 30, 1999. The
Strategic Income Fund does not provide any pension or retirement
benefits for the Trustees.
(c) Includes compensation on behalf of all series of 11 investment companies
for which the Investment Manager serves as sole investment adviser. The
figure in this column is for the 12 months ended December 31, 1998
(d) Includes compensation on behalf of all series of 11 investment companies
for which the Investment Manager serves as sole investment adviser and
all series of Metropolitan Series Fund, Inc. The primary adviser to
Metropolitan Series Fund, Inc. is Metropolitan Life Insurance Company,
which has retained State Street Research & Management Company as
sub-adviser to certain series of Metropolitan Series Fund, Inc. The
figure in this column includes compensation relating to series of
Metropolitan Series Fund, Inc. which are not advised by State Street
Research & Management Company. The figure is for the 12 months ended
December 31, 1998.
For more information on the Trustees and officers of State Street
Research Securities Trust, see Section III, C of this Statement of Additional
Information.
I. Investment Advisory Fee
The advisory fee payable monthly by the Strategic Income Fund to the
Investment Manager is computed as a percentage of the average of the value of
the net assets of the Strategic Income Fund as determined at the close of
regular trading on the NYSE on each day
II, 1-7
<PAGE>
the NYSE is open for trading. The Distributor and its affiliates have from time
to time and in varying amounts voluntarily assumed some portion of fees or
expenses relating to the Strategic Income Fund.
The annual percentage rate: 0.75%.
<TABLE>
<CAPTION>
Fees Waived
Advisory Fees Paid or Expenses Assumed
------------------ -------------------
<S> <C> <C>
Fiscal year ended April 30, 1999 $ 836,499 $ 87,690
Fiscal year ended April 30, 1998 $ 693,828 $ 103,440
August 30, 1996 to April 30, 1997 $ 277,871 $ 63,516
</TABLE>
For more information on the investment advisory arrangements, see
Section III, D of this Statement of Additional Information.
J. Portfolio Turnover
The Strategic Income Fund's portfolio turnover rate is determined by
dividing the lesser of securities purchases or sales for a year by the monthly
average value of securities held by the Strategic Income Fund (excluding, for
purposes of this determination, securities the maturities of which as of the
time of their acquisition were one year or less).
<TABLE>
<CAPTION>
Portfolio Turnover Rates
------------------------
<S> <C>
Fiscal year ended April 30, 1999 169.92%
Fiscal year ended April 30, 1998 179.82%
</TABLE>
For more information on portfolio turnover, see Section III, H of this
Statement of Additional Information.
K. Brokerage Commissions
Brokerage commissions paid by the Strategic Income Fund in secondary
trading were as follows:
<TABLE>
<S> <C>
Fiscal year ended April 30, 1999 $ 2,803
Fiscal year ended April 30, 1998 $ 1,749
August 30, 1996 to April 30, 1997 $ -0-
</TABLE>
During and at the end of its most recent fiscal year, the Strategic
Income Fund held the securities of no entity that might be deemed to be a
regular broker-dealer of the Strategic Income Fund, as defined under the 1940
Act.
For more information on brokerage commissions, see Section III, H of
this Statement of Additional Information.
II, 1-8
<PAGE>
L. Sales Charges on Shares
Front-end Sales Charges (Class A)
<TABLE>
<CAPTION>
Retained by Distributor
After Reallowance of
Total Sales Charges Concessions to Dealers
------------------- ----------------------
<S> <C> <C>
Fiscal year ended April 30, 1999 $ 292,838 $ 40,730
Fiscal year ended April 30, 1998 $ 316,057 $ 43,099
August 30, 1996 to April 30, 1997 $ 261,358 $ 33,102
</TABLE>
Contingent Deferred Sales Charges (Classes A, B(1), B and C)
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended August 30, 1996 to
April 30, 1999 April 30, 1998 April 30, 1997
-------------------------- ------------------------- -------------------------
Contingent Commissions Contingent Commissions Contingent Commissions
Deferred Paid to Deferred Paid to Deferred Paid to
Sales Charges Dealers Sales Charges Dealers Sales Charges Dealers
------------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Class A $ 0 $ 252,108 $ 0 $ 272,958 $ 0 $ 228,256
Class B(1)* $ 133 $ 73,549 $ N/A $ N/A $ N/A $ N/A
Class B $ 109,863 $ 522,845 $ 45,086 $ 670,109 $ 10,978 $ 669,590
Class C $ 1,758 $ 60,010 $ 2,321 $ 52,328 $ 6,571 $ 80,335
</TABLE>
- --------------
*Class B(1) was introduced January 1, 1999.
For more information about sales charges, see Section III, E of this
Statement of Additional Information.
II, 1-9
<PAGE>
M. Rule 12b-1 Fees
The Fund has adopted plans of distribution pursuant to Rule 12b-1 under
the 1940 Act ("Distribution Plan(s)"). Under the Distribution Plans, the Fund
may engage, directly or indirectly, in financing any activities primarily
intended to result in the sale of shares of the Fund. Under the Distribution
Plans, the Fund provides the Distributor with a service fee at an annual rate of
0.25% on the average daily net assets of Class A, Class B(1), Class B and Class
C shares. The Fund also provides a distribution fee at an annual rate of 0.75%
on the average daily net assets of Class B(1), Class B and Class C shares. The
service and distribution fees are used to cover personal services and/or the
maintenance of shareholder accounts provided by the Distributor, brokers,
dealers, financial professionals or others, and sales, promotional and marketing
activities relating to the respective classes.
Under the Distribution Plan covering Class A, Class B and Class C
shares, the Fund's payments are intended to reimburse the Distributor for
expenditures incurred under the plan, and any unused payments are returnable to
the Fund.
Under the Distribution Plan covering Class B(1) shares, the Fund's
payments compensate the Distributor for services and expenditures incurred under
the plan, and none of the payments are returnable to the Fund.
During the fiscal year ended April 30, 1999, the Strategic Income Fund
paid fees under the Distribution Plans and the fees were used as set forth
below. The Distributor may have also used additional resources of its own for
further expenses.
II, 1-10
<PAGE>
<TABLE>
<CAPTION>
Class A Class B(1) Class B Class C
------- ---------- ------- -------
<S> <C> <C> <C> <C>
Advertising $ 7,322 $ 589 $ 3,098 $ 0
Printing and mailing of prospectuses to 1,351 159 460 0
other than current shareholders
Compensation to dealers 61,762 2,759 413,550 140,631
Compensation to sales personnel 18,535 1,802 6,946 0
Interest 0 0 0 0
Carrying or other financing charges 0 0 0 0
Other expenses: marketing; general 15,869 1,899 7,916 0
--------- ------- --------- ---------
Total Fees $ 104,839 $ 7,208 $ 431,970 $ 140,631
========= ======= ========= =========
</TABLE>
For more information about Rule 12b-1 fees, see Section III, J of this
Statement of Additional Information.
N. Performance
All calculations of performance data in this section reflect voluntary
measures, if any, by the Investment Manager or its affiliates to reduce fees or
expenses relating to the Strategic Income Fund.
Performance for Class B(1) shares reflects Class B performance through
December 31, 1998. Class B(1) shares were introduced on January 1, 1999.
Standard Total Return
- ---------------------
The average annual total return ("standard total return") of each class
of shares of the Strategic Income Fund was as follows:
<TABLE>
<CAPTION>
One Year August 30, 1996
Ended to
April 30, 1998 April 30, 1999
-------------- --------------
<S> <C> <C>
Class A -1.54% 6.47%
Class B(1) -2.21% 6.51%
Class B -2.21% 6.51%
Class C 1.55% 7.49%
Class S 3.51% 8.65%
</TABLE>
II, 1-11
<PAGE>
Nonstandard Total Return
- ------------------------
The nonstandard total return of each class of shares of the Strategic
Income Fund for the six months ended April 30, 1999, without taking sales
charges into account, was as follows:
<TABLE>
<S> <C>
Class A 5.07%
Class B(1) 4.69%
Class B 4.69%
Class C 4.69%
Class S 5.35%
</TABLE>
Yield
- -----
The annualized yield of each class of shares of the Strategic Income
Fund, based on the month of April 1999, was as follows:
<TABLE>
<S> <C>
Class A 6.08%
Class B(1) 5.61%
Class B 5.63%
Class C 5.62%
Class S 6.61%
</TABLE>
Distribution Rates
- ------------------
The distribution rate of each class of shares of the Strategic Income
Fund, based on the month of April 1999, was as follows:
<TABLE>
<S> <C>
Class A 6.84%
Class B(1) 6.42%
Class B 6.42%
Class C 6.42%
Class S 7.39%
</TABLE>
For more information about performance, see Section III, K of this
Statement of Additional Information.
II, 1-12
<PAGE>
2. STATE STREET RESEARCH LEGACY FUND
The information in this part 2 of Section II relates only to State
Street Research Legacy Fund (the "Legacy Fund"). For information concerning on
other funds, see Table of Contents.
A. The Fund
The Fund was organized in 1997 as a separate series of the State Street
Research Securities Trust, a Massachusetts business trust (the "Trust"). A
"series" is a separate pool of assets of the Trust which is separately managed
and may have a different investment objective and different investment policies
from the objective and policies of another series. The Trust is currently
comprised of the following series: State Street Research Strategic Income Fund,
State Street Research Legacy Fund and State Street Research Galileo Fund.
The Fund is an "open-end" management investment company and is a
"diversified company" as those terms are defined in the 1940 Act. Among other
things, a diversified fund must, with respect to 75% of its total assets, not
invest more than 5% of its total assets in any one issuer.
Under the Trust's Master Trust Agreement, the Trustees may reorganize,
merge or liquidate the Fund without prior shareholder approval.
B. Investment Objective
The investment objective of Legacy Fund is a fundamental policy and may
only be changed by the affirmative vote of a majority of the outstanding voting
securities of the Fund.
C. Fundamental and Nonfundamental Restrictions
The Legacy Fund has adopted the following investment restrictions, and
those investment restrictions are either fundamental or not fundamental.
Fundamental restrictions may not be changed except by the affirmative vote of a
majority of the outstanding voting securities of the Legacy Fund. Restrictions
that are not fundamental may be changed without a shareholder vote.
The fundamental and nonfundamental policies of the Fund do not apply to
any matters involving the issuance of multiple classes of shares of the Fund or
the creation or use of structures (e.g. fund or funds, master-feeder structure)
allowing the Fund to invest substantially all its assets in collective
investment vehicles or allowing the Fund to serve as such a collective
investment vehicle for other funds, to the extent permitted by law and
regulatory authorities.
II, 2-1
<PAGE>
Fundamental Investment Restrictions.
It is the Legacy Fund's policy:
(1) not to purchase a security of any one issuer (other than
securities issued or guaranteed as to principal or interest by
the U.S. Government or its agencies or instrumentalities or
mixed-ownership Government corporations or sponsored enterprises)
if such purchase would, with respect to 75% of the Legacy Fund's
total assets, cause more than 5% of the Legacy Fund's total
assets to be invested in the securities of such issuer or cause
more than 10% of the voting securities of such issuer to be held
by the Legacy Fund;
(2) not to issue senior securities, as defined in the 1940 Act,
except as permitted by that 1940 Act and the rules thereunder or
as permitted by the Securities and Exchange Commission (the
creation of general lines or security interests under industry
practices for transactions in portfolio assets are not deemed to
involve the issuance of senior securities);
(3) not to underwrite or participate in the marketing of securities
of other issuers, except (a) the Legacy Fund may, acting alone or
in syndicates or groups, purchase or otherwise acquire securities
of other issuers for investment, either from the issuers or from
persons in a control relationship with the issuers or from
underwriters of such securities, and (b) to the extent that, in
connection with the disposition of the Legacy Fund's securities,
the Fund may be a selling shareholder in an offering or deemed to
be an underwriter under certain federal securities laws;
(4) not to purchase fee simple interest in real estate unless
acquired as a result of ownership of securities or other
instruments, although the Legacy Fund may purchase and sell other
interests in real estate including securities which are secured
by real estate, or securities of companies which make real estate
loans or own, or invest or deal in, real estate;
(5) not to invest in physical commodities or physical commodity
contracts or options in excess of 10% of the Legacy Fund's total
assets, except that investments in essentially financial items or
arrangements such as, but not limited to, swap arrangements,
hybrids, currencies, currency and other forward contracts,
delayed delivery and when-issued contracts, futures contracts and
options on futures contracts on securities, securities indices,
interest rates and currencies shall not be deemed investments in
commodities or commodities contracts;
II, 2-2
<PAGE>
(6) not to lend money; however, the Legacy Fund may lend portfolio
securities and purchase bonds, debentures, notes, bills and other
debt related instruments or interests (and enter into repurchase
agreements with respect thereto);
(7) not to make any investment which would cause more than 25% of the
value of the Legacy Fund's total assets to be invested in
securities of issuers principally engaged in any one industry,
except securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities, as described in the Legacy
Fund's Prospectus or Statement of Additional Information as
amended from time to time; and
(8) not to borrow money, including reverse repurchase agreements in
so far as such agreements may be regarded as borrowings, except
for borrowings not in an amount in excess of 33 1/3% of the value
of its total assets.
Nonfundamental Investment Restrictions.
It is the Legacy Fund's policy:
(1) not to purchase any security or enter into a repurchase agreement
if as a result more than 15% of its net assets would be invested
in securities that are illiquid (including repurchase agreements
not entitling the holder to payment of principal and interest
within seven days);
(2) not to engage in transactions in options except in connection
with options on securities, securities indices, currencies and
interest rates, and options on futures on securities, securities
indices, currencies and interest rates;
(3) not to purchase securities on margin or make short sales of
securities or maintain a short position except for short sales
"against the box" (for the purpose of this restriction, escrow or
custodian receipts or letters, margin or safekeeping accounts or
similar arrangements used in the industry in connection with the
trading of futures, options and forward commitments are not
deemed to involve the use of margin); and
(4) not to purchase a security issued by another investment company,
except to the extent permitted under the 1940 Act or except by
purchases in the open market involving only customary brokers'
commissions, or securities acquired as dividends or distributions
or in connection with a merger, consolidation or similar
transaction or other exchange.
II, 2-3
<PAGE>
D. Restricted Securities
It is the Fund's policy not to make an investment in restricted
securities, including Rule 144A Securities, if, as a result, more than 35% of
the Fund's total assets are invested in restricted securities, provided not more
than 10% of the Fund's total assets are invested in restricted securities other
than Rule 144A Securities.
E. Foreign Investments
The Fund reserves the right to invest without limitation in securities
of non-U.S. issuers directly, or indirectly in the form of American Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs") and Global Depository
Receipts ("GDRs"). Under current policy, however, the Fund limits such
investments, including ADRs, EDRs and GDRs, to a maximum of 35% of its total
assets.
F. Industry Classifications
In determining how much of each Fund's portfolio is invested in a given
industry, the following industry classifications are currently used. Securities
issued or guaranteed as to principal or interest by the U.S. Government or its
agencies or instrumentalities or mixed-ownership Government corporations or
sponsored enterprises (including repurchase agreements involving U.S. Government
securities to the extent excludable under relevant regulatory interpretations)
are excluded. Securities issued by foreign governments are also excluded.
Companies engaged in the business of financing may be classified according to
the industries of their parent or sponsor companies or industries that otherwise
most affect such financing companies. Issuers of asset-backed pools will be
classified as separate industries based on the nature of the underlying assets,
such as mortgages and credit card receivables. "Asset-backed-Mortgages" includes
private pools of nongovernment backed mortgages.
Autos & Transportation
- ----------------------
Air Transport
Auto Parts
Automobiles
Miscellaneous
Transportation
Railroad Equipment
Railroads
Recreational Vehicles &
Boats
Tires & Rubber
Truckers
Consumer Discretionary
- ----------------------
Advertising Agencies
Casino/Gambling,
Hotel/Motel
Commercial Services
Communications, Media &
Entertainment
Consumer Electronics
Consumer Products
Consumer Services
Household Furnishings
Leisure Time
Photography
Printing & Publishing
Restaurants
Retail
Shoes
Textile Apparel
Manufacturers
Toys
Consumer Staples
- ----------------
Beverages
Drug & Grocery Store
Chains
Foods
II, 2-4
<PAGE>
Household Products
Tobacco
Financial Services
- ------------------
Banks & Savings and Loans
Financial Data Processing
Services & Systems
Insurance
Miscellaneous Financial
Real Estate Investment
Trusts
Rental & Leasing Services:
Commercial
Securities Brokerage &
Services
Health Care
- -----------
Drugs & Biotechnology
Health Care Facilities
Health Care Services
Hospital Supply
Service Miscellaneous
Integrated Oils
- ---------------
Oil: Integrated Domestic
Oil: Integrated International
Materials & Processing
- ----------------------
Agriculture
Building & Construction
Chemicals
Containers & Packaging
Diversified Manufacturing
Engineering & Contracting
Serv.
Fertilizers
Forest Products
Gold & Precious Metals
Miscellaneous Materials &
Processing
Non-Ferrous Metals
Office Supplies
Paper and Forest Products
Real Estate & Construction
Steel
Textile Products
Other
- -----
Trust Certificates --
Government Related
Lending
Asset-backed-Mortgages
Asset-backed-Credit Card
Receivables
Miscellaneous
Multi-Sector Companies
Other Energy
- ------------
Gas Pipelines
Miscellaneous Energy
Offshore Drilling
Oil and Gas Producers
Oil Well Equipment &
Services
Producer Durables
- -----------------
Aerospace
Electrical Equipment &
Components
Electronics: Industrial
Homebuilding
Industrial Products
Machine Tools
Machinery
Miscellaneous Equipment
Miscellaneous Producer
Durables
Office Furniture & Business
Equipment
Pollution Control and
Environmental Services
Production Technology
Equipment
Telecommunications
Equipment
Technology
- ----------
Communications
Technology
Computer Software
Computer Technology
Electronics
Electronics: Semi-
Conductors/Components
Miscellaneous Technology
Utilities
- ---------
Miscellaneous Utilities
Utilities: Cable TV & Radio
Utilities: Electrical
Utilities: Gas distribution
Utilities:Telecommunications
Utilities: Water
II, 2-5
<PAGE>
G. Control Persons and Principal Holders of Securities
Trustees and Officers
The Trustees and principal officers of State Street Research Securities
Trust as a group owned approximately 1.6% of the Legacy Fund's outstanding Class
A shares and no shares of the fund's Class B(1), Class B, Class C or Class S
shares. All information is as of July 31, 1999.
Other Persons
The following persons or entities were the record and/or beneficial
owners of the following approximate percentages of the Legacy Fund's outstanding
shares. Except as otherwise stated, the Legacy Fund believes that each named
record holder does not have beneficial ownership of such shares. All information
is as of July 31, 1999.
<TABLE>
<CAPTION>
Shareholder %
----------- ---
<S> <C> <C>
Class A Merrill Lynch 10.8
Class B(1) Merrill Lynch 22.7
Class B Merrill Lynch 24.5
Class C Merrill Lynch 34.5
Class S Metropolitan Life 85.5
</TABLE>
The full name and address of each of the above persons or entities are as
follows:
Merrill Lynch, Pierce, Fenner & Smith(b)
4800 Deerlake Drive East
Jacksonville, FL 32246
Metropolitan Life Insurance Company(a)
One Madison Avenue
New York, NY 10010
(a) Metropolitan, a New York Corporation, was the record and/or beneficial
owner, directly or indirectly through its subsidiaries or affiliates, of
such shares.
(b) The Fund believes that each named record holder does not have beneficial
ownership of such shares.
Ownership of 25% or more of a voting security is deemed "control" as
defined in the 1940 Act. So long as 25% of a class of shares is so owned, such
owners will be presumed to be in control of such class of shares for purposes of
voting on certain matters submitted to a vote of shareholders of that class.
II, 2-6
<PAGE>
H. Trustee Compensation
The Trustees of State Street Research Securities Trust were compensated
as follows:
<TABLE>
<CAPTION>
Total Total Compensation
Compensation From All State
Aggregate From All Street Research Funds
Compensation State Street and Metropolitan
From Research Funds Series Fund, Inc.
Name of Trustee Legacy Fund(b) Paid to Trustees (c) Paid to Trustees (d)
- --------------- -------------- -------------------- --------------------
<S> <C> <C> <C>
Bruce R. Bond(a) $ 375 $ 0 $ 0
Steven A. Garban $ 2,300 $ 81,300 $ 110,300
Malcolm T. Hopkins $ 1,900 $ 69,700 $ 97,200
Dean O. Morton $ 2,400 $ 84,700 $ 110,700
Susan M. Phillips(a) $ 0 $ 12,145 $ 12,145
Toby Rosenblatt $ 2,000 $ 72,600 $ 72,600
Michael S. Scott Morton $ 2,600 $ 89,500 $ 115,500
Ralph F. Verni $ 0 $ 0 $ 0
</TABLE>
- ---------------
(a) Bruce Bond and Susan Phillips were elected as Trustees of State Street
Research Securities Trust on January 1, 1999 and April 6, 1999,
respectively, and therefore did not receive any compensation from the
Fund for the year ended December 31, 1998.
(b) For the Legacy Fund's fiscal year ended April 30, 1999. The Legacy Fund
does not provide any pension or retirement benefits for the Trustees.
(c) Includes compensation on behalf of all series of 11 investment companies
for which the Investment Manager serves as sole investment adviser. The
figure in this column is for the 12 months ended December 31, 1998.
(d) Includes compensation on behalf of all series of 11 investment companies
for which the Investment Manager serves as sole investment adviser and
all series of Metropolitan Series Fund, Inc. The primary adviser to
Metropolitan Series Fund, Inc. is Metropolitan Life Insurance Company,
which has retained State Street Research & Management Company as
sub-adviser to certain series of Metropolitan Series Fund, Inc. The
figure in this column includes compensation relating to series of
Metropolitan Series Fund, Inc. which are not advised by State Street
Research & Management Company. The figure is for the 12 months ended
December 31, 1998.
For more information in the Trustees and officers of State Street
Research Securities Trust, see Section III, C of this Statement of Additional
Information.
I. Investment Advisory Fee
The advisory fee payable monthly by the Legacy Fund to the Investment
Manager is computed as a percentage of the average of the value of the net
assets of the Legacy Fund as determined at the close of regular trading on the
NYSE on each day the NYSE is open for
II, 2-7
<PAGE>
trading. The Distributor and its affiliates have from time to time and in
varying amounts voluntarily assumed some portion of fees or expenses relating to
the Legacy Fund.
The annual percentage rate: 0.65%
<TABLE>
<CAPTION>
Fees Waived
Advisory Fees Paid or Expenses Assumed
------------------ -------------------
<S> <C> <C>
Fiscal year ended April 30, 1999 $ 675,883 $ 34,070
December 31, 1997 to April 30, 1998 $ 38,533 $ 75,650
</TABLE>
For more information on the investment advisory arrangements, see
Section III, D of this Statement of Additional Information.
J. Portfolio Turnover
The Legacy Fund's portfolio turnover rate is determined by dividing the
lesser of securities purchases or sales for a year by the monthly average value
of securities held by the Legacy Fund (excluding, for purposes of this
determination, securities the maturities of which as of the time of their
acquisition were one year or less).
<TABLE>
<CAPTION>
Portfolio Turnover Rates
------------------------
<S> <C>
Fiscal year ended April 30, 1999 42.09%
December 31, 1997 to April 30, 1998 6.44%
</TABLE>
The Investment Manager believes that the portfolio turnover rate for the
fiscal year ended April 30, 1999 was significantly higher than the rate for the
prior period because the year ended April 30, 1999 was a full fiscal year
compared to the shorter, initial year ended April 30, 1998.
For more information on portfolio turnover, see Section III, H of this
Statement of Additional Information.
K. Brokerage Commissions
Brokerage commissions paid by the Legacy Fund in secondary trading.
<TABLE>
<S> <C>
Fiscal year ended April 30, 1999 $ 105,286
December 31, 1997 to April 30, 1998 $ 18,667
</TABLE>
During and at the end of its most recent fiscal year, the Legacy Fund
held the securities of the no entity that might be deemed to be a regular
broker-dealer of the Legacy Fund, as defined under the 1940 Act.
For more information on the brokerage commissions, see Section III, H of
this Statement of Additional Information.
II, 2-8
<PAGE>
L. Sales Charges on Shares
Front-end Sales Charges (Class A)
<TABLE>
<CAPTION>
Retained by Distributor
After Reallowance of
Total Sales Charges Concessions to Dealers
------------------- ----------------------
<S> <C> <C>
Fiscal year ended April 30, 1999 $ 825,543 $ 102,858
December 31, 1997 to April 30, 1998 $ 155,909 $ 18,809
</TABLE>
Contingent Deferred Sales Charges (Classes A, B(1), B and C)
<TABLE>
<CAPTION>
Fiscal Year Ended December 31, 1997 to
April 30, 1999 April 30, 1998
-------------------------- -------------------------
Contingent Commissions Contingent Commissions
Deferred Paid to Deferred Paid to
Sales Charges Dealers Sales Charges Dealers
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Class A $ 0 $ 722,685 $ 0 $ 137,100
Class B(1)* $ 94,525 $ 178,614 $ N/A $ N/A
Class B $ 1,271 $ 2,006,117 $ 0 $ 606,852
Class C $ 964 $ 184,249 $ 0 $ 36,660
</TABLE>
- --------------------
*Class B(1) was introduced January 1, 1999.
For more information about sales charges, see Section III, E of this
Statement of Additional Information.
II, 2-9
<PAGE>
M. Rule 12b-1 Fees
The Fund has adopted plans of distribution pursuant to Rule 12b-1 under
the 1940 Act ("Distribution Plan(s)"). Under the Distribution Plans, the Fund
may engage, directly or indirectly, in financing any activities primarily
intended to result in the sale of shares of the Fund. Under the Distribution
Plans, the Fund provides the Distributor with a service fee at an annual rate of
0.25% on the average daily net assets of Class A, Class B(1), Class B and Class
C shares. The Fund also provides a distribution fee at an annual rate of 0.75%
on the average daily net assets of Class B(1), Class B and Class C shares. The
service and distribution fees are used to cover personal services and/or the
maintenance of shareholder accounts provided by the Distributor, brokers,
dealers, financial professionals or others, and sales, promotional and marketing
activities relating to the respective classes.
Under the Distribution Plan covering Class A, Class B and Class C
shares, the Fund's payments are intended to reimburse the Distributor for
expenditures incurred under the plan, and any unused payments are returnable to
the Fund.
Under the Distribution Plan covering Class B(1) shares, the Fund's
payments compensate the Distributor for services and expenditures incurred under
the plan. None of the fees under the plan are returnable to the Fund.
During the fiscal year ended April 30, 1999, the Legacy Fund paid fees
under the Distribution Plans and the fees were used as set forth below. The
Distributor may have also used additional resources of its own for further
expenses on behalf of the Legacy Fund.
<TABLE>
<CAPTION>
Class A Class B(1) Class B Class C
------- ---------- ------- -------
<S> <C> <C> <C> <C>
Advertising $ 0 $ 2,302 $ 31,705 $ 0
Printing and mailing of prospectuses to 0 624 4,709 0
other than current shareholders
Compensation to dealers 72,682 13,029 345,079 0
Compensation to sales personnel 0 7,484 72,637 136,341
Interest 0 0 0 0
Carrying or other financing charges 0 0 0 0
Other expenses: marketing; general 0 9,994 79,916 0
-------- -------- --------- ---------
Total Fees $ 72,682 $ 33,433 $ 534,046 $ 136,341
======== ======== ========= =========
</TABLE>
II, 2-10
<PAGE>
For more information about Rule 12b-1 fees, see Section III, J of this
Statement of Additional Information.
N. Performance
All calculations of performance data in this section reflect voluntary
measures, if any, by the Investment Manager or its affiliates to reduce fees or
expenses relating to the Legacy Fund.
Performance for Class B(1) shares reflects Class B performance through
December 31, 1998. Class B(1) shares were introduced on January 1, 1999.
Standard Total Return
- ---------------------
The average annual total return ("standard total return") of each class
of shares of the Legacy Fund was as follows:
<TABLE>
<CAPTION>
One Year December 31, 1997
Ended to
April 30, 1999 April 30, 1999
-------------- --------------
<S> <C> <C>
Class A 16.62% 25.96%
Class B(1) 17.74% 27.97%
Class B 17.74% 27.97%
Class C 21.85% 30.73%
Class S 24.04% 32.10%
</TABLE>
Nonstandard Total Return
- ------------------------
The nonstandard total return of each class of shares of the Legacy Fund
for the six months ended April 30, 1999, without taking sales charges into
account, was as follows:
<TABLE>
<S> <C>
Class A 25.56%
Class B(1) 25.11%
Class B 25.11%
Class C 25.11%
Class S 25.76%
</TABLE>
For more information about performance, see Section III, K of this
Statement of Additional Information.
II, 2-11
<PAGE>
3. STATE STREET RESEARCH GALILEO FUND
The information in this part 3 of Section II relates only to State
Street Research Galileo Fund (the "Galileo Fund"). For information on other
funds, see Table of Contents.
A. The Fund
The Fund was organized in 1998 as a separate series of the State Street
Research Securities Trust, a Massachusetts business trust (the "Trust"). A
"series" is a separate pool of assets of the Trust which is separately managed
and may have a different investment objective and different investment policies
from the objective and policies of another series. The Trust is currently
comprised of the following series: State Street Research Strategic Income Fund,
State Street Research Legacy Fund and State Street Research Galileo Fund.
The Fund is an "open-end" management investment company and is a
"diversified company" as those terms are defined in the 1940 Act. Among other
things, a diversified Fund must, with respect to 75% of its total assets, not
invest more than 5% of its total assets in any one issuer.
Under the Trust's Master Trust Agreement, the Trustees may reorganize,
merge or liquidate the Fund without prior shareholder approval.
B. Investment Objective
The investment objective of Galileo Fund is a fundamental policy and may
only be changed by the affirmative vote of a majority of the outstanding voting
securities of the Fund.
C. Fundamental and Nonfundamental Restrictions
The Galileo Fund has adopted the following investment restrictions, and
those investment restrictions are either fundamental or not fundamental.
Fundamental restrictions may not be changed except by the affirmative vote of a
majority of the outstanding voting securities of the Galileo Fund. Restrictions
that are not fundamental may be changed by a vote of a majority of the Trustees
of State Street Research Securities Trust.
The fundamental and nonfundamental policies of the Fund do not apply to
any matters involving the issuance of multiple classes of shares of the Fund or
the creation or use of structures (e.g. fund or funds, master-feeder structure)
allowing the Fund to invest substantially all its assets in collective
investment vehicles or allowing the Fund to serve as such a collective
investment vehicle for other funds, to the extent permitted by law and
regulatory authorities.
II, 3-1
<PAGE>
Fundamental Investment Restrictions.
It is the Galileo Fund's policy:
(1) not to purchase a security of any one issuer (other than
securities issued or guaranteed as to principal or interest by
the U.S. Government or its agencies or instrumentalities or
mixed-ownership Government corporations or sponsored enterprises)
if such purchase would, with respect to 75% of the Galileo Fund's
total assets, cause more than 5% of the Galileo Fund's total
assets to be invested in the securities of such issuer or cause
more than 10% of the voting securities of such issuer to be held
by the Fund;
(2) not to issue senior securities, as defined in the 1940 Act,
except as permitted by that 1940 Act and the rules thereunder or
as permitted by the Securities and Exchange Commission (the
creation of general lines or security interests under industry
practices for transactions in portfolio assets are not deemed to
involve the issuance of senior securities);
(3) not to underwrite or participate in the marketing of securities
of other issuers, except (a) the Galileo Fund may, acting alone
or in syndicates or groups, purchase or otherwise acquire
securities of other issuers for investment, either from the
issuers or from persons in a control relationship with the
issuers or from underwriters of such securities, and (b) to the
extent that, in connection with the disposition of the Galileo
Fund's securities, the Galileo Fund may be a selling shareholder
in an offering or deemed to be an underwriter under certain
federal securities laws;
(4) not to purchase fee simple interest in real estate unless
acquired as a result of ownership of securities or other
instruments, although the Galileo Fund may purchase and sell
other interests in real estate including securities which are
secured by real estate, or securities of companies which make
real estate loans or own, or invest or deal in, real estate;
(5) not to invest in physical commodities or physical commodity
contracts or options in excess of 10% of the Galileo Fund's total
assets, except that investments in essentially financial items or
arrangements such as, but not limited to, swap arrangements,
hybrids, currencies, currency and other forward contracts,
delayed delivery and when-issued contracts, futures contracts and
options on futures contracts on securities, securities indices,
interest rates and currencies shall not be deemed investments in
commodities or commodities contracts;
(6) not to lend money directly to natural persons; however, the
Galileo Fund may lend portfolio securities and purchase bonds,
debentures, notes, bills and any
II, 3-2
<PAGE>
other debt related instruments or interests directly from the
issuer thereof or in the open market and may enter into
repurchase transactions collateralized by obligations of the U.S.
Government or its agencies and instrumentalities or other high
quality securities;
(7) not to make any investment which would cause more than 25% of the
value of the Galileo Fund's total assets to be invested in
securities of issuers principally engaged in any one industry,
except securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities or mixed ownership Government
corporations or sponsored enterprises, as described in the
Galileo Fund's Prospectus or Statement of Additional Information
as amended from time to time; and
(8) not to borrow money, including reverse repurchase agreements in
so far as such agreements may be regarded as borrowings, except
for borrowings not in an amount in excess of 33 1/3% of the value
of its total assets.
Nonfundamental Investment Restrictions.
It is Galileo Fund's policy:
(1) not to purchase any security or enter into a repurchase agreement
if as a result more than 15% of its net assets would be invested
in securities that are illiquid (including repurchase agreements
not entitling the holder to payment of principal and interest
within seven days);
(2) not to engage in transactions in options except in connection
with options on securities, securities indices, currencies and
interest rates, and options on futures on securities, securities
indices, currencies and interest rates;
(3) not to purchase securities on margin or make short sales of
securities or maintain a short position except for short sales
"against the box" (for the purpose of this restriction, escrow or
custodian receipts or letters, margin or safekeeping accounts or
similar arrangements used in the industry in connection with the
trading of futures, options and forward commitments are not
deemed to involve the use of margin); and
(4) not to purchase a security issued by another investment company,
except to the extent permitted under the 1940 Act or except by
purchases in the open market involving only customary brokers'
commissions, or securities acquired as dividends or distributions
or in connection with a merger, consolidation or similar
transaction or other exchange.
II, 3-3
<PAGE>
D. Restricted Securities
It is the Fund's policy not to make an investment in restricted
securities, including Rule 144A Securities, if, as a result, more than 35% of
the Fund's total assets are invested in restricted securities, provided not more
than 10% of the Fund's total assets are invested in restricted securities other
than Rule 144A Securities.
E. Foreign Investments
The Fund reserves the right to invest without limitation in securities
of non-U.S. issuers directly, or indirectly in the form of American Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs") and Global Depository
Receipts ("GDRs"). Under current policy, however, the Fund limits such
investments, including ADRs, EDRs an GDRs, to a maximum of 35% of its total
assets.
F. Industry Classifications
In determining how much of each Fund's portfolio is invested in a given
industry, the following industry classifications are currently used. Securities
issued or guaranteed as to principal or interest by the U.S. Government or its
agencies or instrumentalities or mixed-ownership Government corporations or
sponsored enterprises (including repurchase agreements involving U.S. Government
securities to the extent excludable under relevant regulatory interpretations)
are excluded. Securities issued by foreign governments are also excluded.
Companies engaged in the business of financing may be classified according to
the industries of their parent or sponsor companies or industries that otherwise
most affect such financing companies. Issuers of asset-backed pools will be
classified as separate industries based on the nature of the underlying assets,
such as mortgages and credit card receivables. "Asset-backed-Mortgages" includes
private pools of nongovernment backed mortgages.
Autos & Transportation
- ----------------------
Air Transport
Auto Parts
Automobiles
Miscellaneous
Transportation
Railroad Equipment
Railroads
Recreational Vehicles &
Boats
Tires & Rubber
Truckers
Consumer Discretionary
- ----------------------
Advertising Agencies
Casino/Gambling,
Hotel/Motel
Commercial Services
Communications, Media &
Entertainment
Consumer Electronics
Consumer Products
Consumer Services
Household Furnishings
Leisure Time
Photography
Printing & Publishing
Restaurants
Retail
Shoes
Textile Apparel
Manufacturers
Toys
Consumer Staples
- ----------------
Beverages
Drug & Grocery Store
Chains
Foods
Household Products
Tobacco
Financial Services
Banks & Savings and Loans
Financial Data Processing
II, 3-4
<PAGE>
Services & Systems
Insurance
Miscellaneous Financial
Real Estate Investment
Trusts
Rental & Leasing Services:
Commercial
Securities Brokerage &
Services
Health Care
- -----------
Drugs & Biotechnology
Health Care Facilities
Health Care Services
Hospital Supply
Service Miscellaneous
Integrated Oils
- ---------------
Oil: Integrated Domestic
Oil: Integrated International
Materials & Processing
- ----------------------
Agriculture
Building & Construction
Chemicals
Containers & Packaging
Diversified Manufacturing
Engineering & Contracting
Serv.
Fertilizers
Forest Products
Gold & Precious Metals
Miscellaneous Materials &
Processing
Non-Ferrous Metals
Office Supplies
Paper and Forest Products
Real Estate & Construction
Steel
Textile Products
Other
- -----
Trust Certificates --
Government Related
Lending
Asset-backed-Mortgages
Asset-backed-Credit Card
Receivables
Miscellaneous
Multi-Sector Companies
Other Energy
- ------------
Gas Pipelines
Miscellaneous Energy
Offshore Drilling
Oil and Gas Producers
Oil Well Equipment &
Services
Producer Durables
- -----------------
Aerospace
Electrical Equipment &
Components
Electronics: Industrial
Homebuilding
Industrial Products
Machine Tools
Machinery
Miscellaneous Equipment
Miscellaneous Producer
Durables
Office Furniture & Business
Equipment
Pollution Control and
Environmental Services
Production Technology
Equipment
Telecommunications
Equipment
Technology
- ----------
Communications
Technology
Computer Software
Computer Technology
Electronics
Electronics: Semi-
Conductors/Components
Miscellaneous Technology
Utilities
- ---------
Miscellaneous Utilities
Utilities: Cable TV & Radio
Utilities: Electrical
Utilities: Gas distribution
Utilities:Telecommunications
Utilities: Water
II, 3-5
<PAGE>
G. Control Persons and Principal Holders of Securities
Trustees and Officers
The Trustees and principal officers of State Street Research Securities
Trust as a group owned approximately 1.5% of the Galileo Fund's outstanding
Class A shares and no shares of the fund's outstanding Class B(1), Class B,
Class C or Class S shares. All information is as of July 31, 1999.
Other Persons
The following persons or entities were the record and/or beneficial
owners of the following approximate percentages of the Galileo Fund's
outstanding shares. Except as otherwise stated, the Galileo Fund believes that
each named record holder does not have beneficial ownership of such shares. All
information is as of July 31, 1999.
<TABLE>
<CAPTION>
Shareholder %
----------- ---
<S> <C> <C>
Class B(1) Metropolitan Life 18.8
Class B Merrill Lynch 5.7
Class C Merrill Lynch 22.8
Metropolitan Life 19.1
Donaldson Lufkin
Jenrette 8.2
Class S Metropolitan Life 95.6
</TABLE>
The full name and address of each of the above persons or entities are as
follows:
Metropolitan Life Insurance Company(a)
One Madison Avenue
New York, NY 10010
Merrill Lynch, Pierce, Fenner & Smith(b)
One Liberty Plaza
165 Broadway
New York, NY 10080
Donaldson Lufkin Jenrette Securities Corporation, Inc.(b)
P.O. Box 2052
Jersey City, NJ 07303
(a) Metropolitan, a New York Corporation, was the record and/or beneficial
owner, directly or indirectly through its subsidiaries or affiliates, of
such shares.
(b) The Fund believes that each named record holder does not have beneficial
ownership of such shares.
Ownership of 25% or more of a voting security is deemed "control" as
defined in the 1940 Act. So long as 25% of a class of shares is so owned, such
owners will be presumed to be in control of such class of shares for purposes of
voting on certain matters submitted to a vote of shareholders of that class.
II, 3-6
<PAGE>
H. Trustee Compensation
The Trustees of State Street Research Securities Trust were compensated
as follows:
<TABLE>
<CAPTION>
Total Total Compensation
Compensation From All State
Aggregate From All Street Research Funds
Compensation State Street and Metropolitan
From Research Funds Series Fund, Inc.
Name of Trustee Galileo Fund(b) Paid to Trustees (c) Paid to Trustees (d)
- --------------- --------------- -------------------- --------------------
<S> <C> <C> <C>
Bruce R. Bond(a) $ 375 $ 0 $ 0
Steven A. Garban $ 2,300 $ 81,300 $ 110,300
Malcolm T. Hopkins $ 1,900 $ 69,700 $ 97,200
Dean O. Morton $ 2,400 $ 84,700 $ 110,700
Susan M. Phillips(a) $ 0 $ 12,145 $ 12,145
Toby Rosenblatt $ 2,000 $ 72,600 $ 72,600
Michael S. Scott Morton $ 2,600 $ 89,500 $ 115,500
Ralph F. Verni $ 0 $ 0 $ 0
</TABLE>
- ---------------
(a) Bruce Bond and Susan Phillips were elected as Trustees of State Street
Research Securities Trust on January 1, 1999 and April 6, 1999,
respectively, and therefore did not receive any compensation from the
Fund for the year ended December 31, 1998.
(b) For the Galileo Fund's fiscal year ended April 30, 1999. The Galileo
Fund does not provide any pension or retirement benefits for the
Trustees.
(c) Includes compensation on behalf of all series of 11 investment companies
for which the Investment Manager serves as sole investment adviser. The
figure in this column is for the 12 months ended December 31, 1998.
(d) Includes compensation on behalf of all series of 11 investment companies
for which the Investment Manager serves as sole investment adviser and
all series of Metropolitan Series Fund, Inc. The primary adviser to
Metropolitan Series Fund, Inc. is Metropolitan Life Insurance Company,
which has retained State Street Research & Management Company as
sub-adviser to certain series of Metropolitan Series Fund, Inc. The
figure in this column includes compensation relating to series of
Metropolitan Series Fund, Inc. which are not advised by State Street
Research & Management Company. The figure is for the 12 months ended
December 31, 1998.
For more information on the Trustees and officers of State Street
Research Securities Trust, see Section III, C of this Statement of Additional
Information.
I. Investment Advisory Fee
The advisory fee payable monthly by the Galileo Fund to the Investment
Manager is computed as a percentage of the average of the value of the net
assets of the Galileo Fund as determined at the close of regular trading on the
NYSE on each day the NYSE is open for
II, 3-7
<PAGE>
trading. The Distributor and its affiliates have from time to time and in
varying amounts voluntarily assumed some portion of fees or expenses relating to
the Galileo Fund.
The annual percentage rate: 0.65%
<TABLE>
<CAPTION>
Fees Waived
Advisory Fees Paid or Expenses Assumed
------------------ --------------------
<S> <C> <C>
Fiscal year ended April 30, 1999 $ 229,514 $ 265,492
March 11, 1998 to April 30, 1998 $ 9,148 $ 34,714
</TABLE>
For more information on investment advisory arrangements, see Section
III, D of this Statement of Additional Information.
J. Portfolio Turnover
The Galileo Fund's portfolio turnover rate is determined by dividing the
lesser of securities purchases or sales for a year by the monthly average value
of securities held by the Galileo Fund (excluding, for purposes of this
determination, securities the maturities of which as of the time of their
acquisition were one year or less).
<TABLE>
<CAPTION>
Portfolio Turnover Rates
------------------------
<S> <C>
Fiscal year ended April 30, 1999 134.16%
March 11, 1998 to April 30, 1998 13.04%
</TABLE>
The Investment Manager believes that the portfolio turnover rate for the
fiscal year ended April 30, 1999 was significantly higher than the rate for the
prior period because the year ended April 30, 1999 was a full fiscal year
compared to the shorter, initial year ended April 30, 1998.
For more information on portfolio turnover, see Section III, H of this
Statement of Additional Information.
K. Brokerage Commissions
Brokerage commissions paid by the Galileo Fund in secondary trading.
<TABLE>
<S> <C>
Fiscal year ended April 30, 1999 $ 79,961
March 11, 1998 to April 30, 1998 $ 10,227
</TABLE>
During and at the end of its most recent fiscal year, the Galileo Fund
held the securities of the no entity that might be deemed to be a regular
broker-dealer of the Galileo Fund, as defined under the 1940 Act.
For more information non brokerage commissions, see Section III, H of
this Statement of Additional Information.
II, 3-8
<PAGE>
L. Sales Charges on Shares
Front-end Sales Charges (Class A)
<TABLE>
<CAPTION>
Retained by Distributor
After Reallowance of
Total Sales Charges Concessions to Dealers
------------------- -----------------------
<S> <C> <C>
Fiscal year ended April 30, 1999 $ 191,852 $ 22,383
March 11, 1998 to April 30, 1998 $ 74,276 $ 9,170
</TABLE>
Contingent Deferred Sales Charges (Classes A, B(1), B and C)
<TABLE>
<CAPTION>
Fiscal Year Ended March 11, 1998 to
April 30, 1999 April 30, 1998
-------------------------- -------------------------
Contingent Commissions Contingent Commissions
Deferred Paid to Deferred Paid to
Sales Charges Dealers Sales Charges Dealers
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Class A $ 0 $ 169,469 $ 0 $ 65,106
Class B(1)* $ 853 $ 20,332 $ 0 $ 0
Class B $ 72,384 $ 473,731 $ 0 $ 133,482
Class C $ 778 $ 20,104 $ 0 $ 4,040
</TABLE>
- --------------
*Class B(1) was introduced January 1, 1999.
For more information on sales charges, see Section III, E of this
Statement of Additional Information.
II, 3-9
<PAGE>
M. Rule 12b-1 Fees
The Fund has adopted plans of distribution pursuant to Rule 12b-1 under
the 1940 Act ("Distribution Plan(s)"). Under the Distribution Plans, the Fund
may engage, directly or indirectly, in financing any activities primarily
intended to result in the sale of shares of the Fund. Under the Distribution
Plans, the Fund provides the Distributor with a service fee at an annual rate of
0.25% on the average daily net assets of Class A, Class B(1), Class B and Class
C shares. The Fund also provides a distribution fee at an annual rate of 0.75%
on the average daily net assets of Class B(1), Class B and Class C shares. The
service and distribution fees are used to cover personal services and/or the
maintenance of shareholder accounts provided by the Distributor, brokers,
dealers, financial professionals or others, and sales, promotional and marketing
activities relating to the respective classes.
Under the Distribution Plan covering Class A, Class B and Class C
shares, the Fund's payments are intended to reimburse the Distributor for
expenditures incurred under the plan, and any unused payments are returnable to
the Fund.
Under the Distribution Plan covering Class B(1) shares, the Fund's
payments compensate the Distributor for services and expenditures incurred under
the plan, and none of the payments are returnable to the Fund.
During the fiscal year ended April 30, 1999, the Galileo Fund paid fees
under the Distribution Plan and the fees were used as set forth below. The
Distributor may have also used additional resources of its own for further
expenses on behalf of the Galileo Fund.
<TABLE>
<CAPTION>
Class A Class B(1) Class B Class C
------- ---------- ------- -------
<S> <C> <C> <C> <C>
Advertising $ 613 $ 391 $ 9,335 $ 1,233
Printing and mailing of prospectuses to 113 106 1,388 227
other than current shareholders
Compensation to dealers 27,751 792 101,206 15,588
Compensation to sales personnel 1,570 1,166 20,660 2,969
Interest 0 0 0 0
Carrying or other financing charges 0 0 0 0
Other expenses: marketing; general 1,358 1,070 19,568 2,424
-------- ------- --------- --------
Total Fees $ 31,405 $ 3,525 $ 152,157 $ 22,441
======== ======= ========= ========
</TABLE>
II, 3-10
<PAGE>
For more information in Rule 12b-1 fees, see Section III, J of this
Statement of Additional Information.
N. Performance
All calculations of performance data in this section reflect voluntary
measures, if any, by the Investment Manager or its affiliates to reduce fees or
expenses relating to the Galileo Fund.
Performance for Class B(1) reflects Class B performance through December
31, 1998. Class B(1) shares were introduced on January 1, 1999.
Standard Total Return
- ---------------------
The average annual total return ("standard total return") of each class
of shares of the Fund was as follows:
<TABLE>
<CAPTION>
One Year March 11, 1999
Ended to
April 30, 1999 April 30, 1998
-------------- --------------
<S> <C> <C>
Class A 11.48% 13.73%
Class B(1) 12.51% 15.48%
Class B 12.50% 15.46%
Class C 16.36% 18.88%
Class S 18.59% 20.07%
</TABLE>
Nonstandard Total Return
- ------------------------
The nonstandard total return of each class of shares of the Galileo Fund
for the six months ended April 30, 1999, without taking sales charges into
account, was as follows:
<TABLE>
<S> <C>
Class A 25.62%
Class B(1) 25.10%
Class B 25.08%
Class C 25.06%
Class S 25.68%
</TABLE>
For more information about performance, see Section III, K of this
Statement of Additional Information.
II, 3-11
<PAGE>
SECTION III
This Section III contains general information applicable to the funds
identified on the cover page of this Statement of Additional Information.
A. Additional Information Concerning Investment Restrictions,
Certain Risks and Investment Techniques
Each Fund follows certain fundamental and nonfundamental investment
restrictions. The fundamental and nonfundamental investment restrictions for
those Funds identified on the cover page of this Statement of Additional
Information are included in Section II of this Statement of Additional
Information.
In addition, each Fund may invest in the following instruments, use the
following investment techniques or be exposed to the following investment risks.
Please note that not all of the instruments, techniques and risks described in
this part apply uniformly to the Funds identified on the cover page of this
Statement of Additional Information. The extent to which a Fund may engage in
the following practices depends on the investment strategy of the Fund. Some
practices are more applicable to equity investments and would be used more by
Funds with substantial equity portions. For example, American Depository
Receipts ("ADRs") generally involve the stocks of foreign issuers and are used
more by Funds which invest in foreign securities. Similarly, some practices are
more applicable to debt securities and would be used more in Funds with
substantial debt positions, for example, techniques to manage the interest rate
volatility of bonds. However, since all Funds generally reserve the flexibility
to invest to some degree in ways which are outside their primary focus, it is
possible for each Fund to engage in all the described practices.
Derivatives
- -----------
The Fund may buy and sell certain types of derivatives, such as options
futures contracts, options on futures contracts, and swaps under circumstances
in which such instruments are expected by the Investment Manager to aid in
achieving the Fund's investment objective. The Fund may also purchase
instruments with characteristics of both futures and securities (e.g., debt
instruments with interest and principal payments determined by reference to the
value of a commodity or a currency at a future time) and which, therefore,
possess the risks of both futures and securities investments.
Derivatives, such as options, futures contracts, options on futures
contracts, and swaps enable the Fund to take both "short" positions (positions
which anticipate a decline in the market value of a particular asset or index)
and "long" positions (positions which anticipate an increase in the market value
of a particular asset or index). The Fund may also use strategies which involve
simultaneous short and long positions in response to specific market conditions,
such as where the Investment Manager anticipates unusually high or low market
volatility.
III-1
<PAGE>
The Investment Manager may enter into derivative positions for the Fund
for either hedging or non-hedging purposes. The term hedging is applied to
defensive strategies designed to protect the Fund from an expected decline in
the market value of an asset or group of assets that the Fund owns (in the case
of a short hedge) or to protect the Fund from an expected rise in the market
value of an asset or group of assets which it intends to acquire in the future
(in the case of a long or "anticipatory" hedge). Non-hedging strategies include
strategies designed to produce incremental income (such as the option writing
strategy described below) or "speculative" strategies which are undertaken to
profit from (i) an expected decline in the market value of an asset or group of
assets which the Fund does not own or (ii) expected increases in the market
value of an asset which it does not plan to acquire. Information about specific
types of instruments is provided below.
Futures Contracts.
Futures contracts are publicly traded contracts to buy or sell an
underlying asset or group of assets, such as a currency or an index of
securities, at a future time at a specified price. A contract to buy establishes
a long position while a contract to sell establishes a short position.
The purchase of a futures contract on an equity security or an index of
equity securities normally enables a buyer to participate in the market movement
of the underlying asset or index after paying a transaction charge and posting
margin in an amount equal to a small percentage of the value of the underlying
asset or index. The Fund will initially be required to deposit with the Trust's
custodian or the broker effecting the futures transaction an amount of "initial
margin" in cash or securities, as permitted under applicable regulatory
policies.
Initial margin in futures transactions is different from margin in
securities transactions in that the former does not involve the borrowing of
funds by the customer to finance the transaction. Rather, the initial margin is
like a performance bond or good faith deposit on the contract. Subsequent
payments (called "maintenance margin") to and from the broker will be made on a
daily basis as the price of the underlying asset fluctuates. This process is
known as "marking to market." For example, when the Fund has taken a long
position in a futures contract and the value of the underlying asset has risen,
that position will have increased in value and the Fund will receive from the
broker a maintenance margin payment equal to the increase in value of the
underlying asset. Conversely, when the Fund has taken a long position in a
futures contract and the value of the underlying instrument has declined, the
position would be less valuable, and the Fund would be required to make a
maintenance margin payment to the broker.
At any time prior to expiration of the futures contract, the Fund may
elect to close the position by taking an opposite position which will terminate
the Fund's position in the futures contract. A final determination of
maintenance margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain. While
III-2
<PAGE>
futures contracts with respect to securities do provide for the delivery and
acceptance of such securities, such delivery and acceptance are seldom made.
In transactions establishing a long position in a futures contract,
assets equal to the face value of the futures contract will be identified by the
Fund to the Trust's custodian for maintenance in a separate account to insure
that the use of such futures contracts is unleveraged. Similarly, assets having
a value equal to the aggregate face value of the futures contract will be
identified with respect to each short position. The Fund will utilize such
assets and methods of cover as appropriate under applicable exchange and
regulatory policies.
Options.
The Fund may use options to implement its investment strategy. There are
two basic types of options: "puts" and "calls." Each type of option can
establish either a long or a short position, depending upon whether the Fund is
the purchaser or the writer of the option. A call option on a security, for
example, gives the purchaser of the option the right to buy, and the writer the
obligation to sell, the underlying asset at the exercise price during the option
period. Conversely, a put option on a security gives the purchaser the right to
sell, and the writer the obligation to buy, the underlying asset at the exercise
price during the option period.
Purchased options have defined risk, that is, the premium paid for the
option, no matter how adversely the price of the underlying asset moves, while
affording an opportunity for gain corresponding to the increase or decrease in
the value of the optioned asset. In general, a purchased put increases in value
as the value of the underlying security falls and a purchased call increases in
value as the value of the underlying security rises.
The principal reason to write options is to generate extra income (the
premium paid by the buyer). Written options have varying degrees of risk. An
uncovered written call option theoretically carries unlimited risk, as the
market price of the underlying asset could rise far above the exercise price
before its expiration. This risk is tempered when the call option is covered,
that is, when the option writer owns the underlying asset. In this case, the
writer runs the risk of the lost opportunity to participate in the appreciation
in value of the asset rather than the risk of an out-of-pocket loss. A written
put option has defined risk, that is, the difference between the agreed upon
price that the Fund must pay to the buyer upon exercise of the put and the
value, which could be zero, of the asset at the time of exercise.
The obligation of the writer of an option continues until the writer
effects a closing purchase transaction or until the option expires. To secure
its obligation to deliver the underlying asset in the case of a call option, or
to pay for the underlying asset in the case of a put option, a covered writer is
required to deposit in escrow the underlying security or other assets in
accordance with the rules of the applicable clearing corporation and exchanges.
Among the options which the Fund may enter are options on securities
indices. In general, options on indices of securities are similar to options on
the securities themselves
III-3
<PAGE>
except that delivery requirements are different. For example, a put option on an
index of securities does not give the holder the right to make actual delivery
of a basket of securities but instead gives the holder the right to receive an
amount of cash upon exercise of the option if the value of the underlying index
has fallen below the exercise price. The amount of cash received will be equal
to the difference between the closing price of the index and the exercise price
of the option expressed in dollars times a specified multiple. As with options
on equity securities or futures contracts, the Fund may offset its position in
index options prior to expiration by entering into a closing transaction on an
exchange or it may let the option expire unexercised.
A securities index assigns relative values to the securities included in
the index and the index options are based on a broad market index. In connection
with the use of such options, the Fund may cover its position by identifying
assets having a value equal to the aggregate face value of the option position
taken.
Options on Futures Contracts.
An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the period of the option.
Limitations and Risks of Options and Futures Activity.
The Fund may not establish a position in a commodity futures contract or
purchase or sell a commodity option contract for other than bona fide hedging
purposes if immediately thereafter the sum of the amount of initial margin
deposits and premiums required to establish such positions for such non-hedging
purposes would exceed 5% of the market value of the Fund's net assets. The Fund
applies a similar policy to options that are not commodities.
As noted above, the Fund may engage in both hedging and nonhedging
strategies. Although effective hedging can generally capture the bulk of a
desired risk adjustment, no hedge is completely effective. The Fund's ability to
hedge effectively through transactions in futures and options depends on the
degree to which price movements in its holdings correlate with price movements
of the futures and options.
Non-hedging strategies typically involve special risks. The
profitability of the Fund's non-hedging strategies will depend on the ability of
the Investment Manager to analyze both the applicable derivatives market and the
market for the underlying asset or group of assets. Derivatives markets are
often more volatile than corresponding securities markets and a relatively small
change in the price of the underlying asset or group of assets can have a
magnified effect upon the price of a related derivative instrument.
III-4
<PAGE>
Derivatives markets also are often less liquid than the market for the
underlying asset or group of assets. Some positions in futures and options may
be closed out only on an exchange which provides a secondary market therefor.
There can be no assurance that a liquid secondary market will exist for any
particular futures contract or option at any specific time. Thus, it may not be
possible to close such an option or futures position prior to maturity. The
inability to close options and futures positions also could have an adverse
impact on the Fund's ability to effectively carry out their derivative
strategies and might, in some cases, require a Fund to deposit cash to meet
applicable margin requirements. The Fund will enter into an option or futures
position only if it appears to be a liquid investment.
Short Sales Against the Box
- ---------------------------
The Fund may effect short sales, but only if such transactions are short
sale transactions known as short sales "against the box." A short sale is a
transaction in which the Fund sells a security it does not own by borrowing it
from a broker, and consequently becomes obligated to replace that security. A
short sale against the box is a short sale where the Fund owns the security sold
short or has an immediate and unconditional right to acquire that security
without additional cash consideration upon conversion, exercise or exchange of
options with respect to securities held in its portfolio. The effect of selling
a security short against the box is to insulate that security against any future
gain or loss.
Lower Quality Fixed Income Securities
- -------------------------------------
In addition to those risks set forth in the Fund's Prospectus, lower
quality securities involve risks (i) that the limited liquidity and secondary
market support for such securities will heighten the effect of adverse publicity
and investor perceptions and make selection and valuation of portfolio
securities more subjective and dependent upon the Investment Manager's credit
analysis; (ii) of substantial market price volatility and/or the potential for
the insolvency of issuers during periods of changing interest rates and economic
difficulty, particularly with respect to securities that do not pay interest
currently in cash; (iii) of subordination to the prior claims of banks and other
senior lenders; (iv) of the possibility that earnings of an issuer may be
insufficient to meet its debt service; and (v) of realization of taxable income
for shareholders without the corresponding receipt of cash in connection with
investments in "zero coupon" or "pay-in-kind" securities. Growth in the market
for this type of security has paralleled a general expansion in certain sectors
in the U.S. economy, and the effects of adverse economic changes (including a
recession) are unclear.
Swap Arrangements
- -----------------
Each Fund may enter into various forms of swap arrangements with
counterparties with respect to interest rates, currency rates or indices,
including purchase of caps, floors and collars as described below, although the
Fund does not presently expect to invest more than 5% of its net assets in such
items. In an interest rate swap, the Fund could agree for a specified period to
pay a bank or investment banker the floating rate of interest on a so-called
III-5
<PAGE>
notional principal amount (i.e., an assumed figure selected by the parties for
this purpose) in exchange for agreement by the bank or investment banker to pay
the Fund a fixed rate of interest on the notional principal amount. In a
currency swap, the Fund would agree with the other party to exchange cash flows
based on the relative differences in values of a notional amount of two (or
more) currencies; in an index swap, the Fund would agree to exchange cash flows
on a notional amount based on changes in the values of the selected indices.
Purchase of a cap entitles the purchaser to receive payments from the seller on
a notional amount to the extent that the selected index exceeds an agreed upon
interest rate or amount whereas purchase of a floor entitles the purchaser to
receive such payments to the extent the selected index falls below an
agreed-upon interest rate or amount. A collar combines a cap and a floor.
The Fund may enter credit protection swap arrangements involving the
sale by the Fund of a put option on a debt security which is exercisable by the
buyer upon certain events, such as a default by the referenced creditor on the
underlying debt or a bankruptcy event of the creditor.
Most swaps entered into by the Fund will be on a net basis; for example,
in an interest rate swap, amounts generated by application of the fixed rate and
the floating rate to the notional principal amount would first offset one
another, with the Fund either receiving or paying the difference between such
amounts. In order to be in a position to meet any obligations resulting from
swaps, the Fund will set up a segregated custodial account to hold appropriate
liquid assets, including cash; for swaps entered into on a net basis, assets
will be segregated having a daily net asset value equal to any excess of the
Fund's accrued obligations over the accrued obligations of the other party,
while for swaps on other than a net basis assets will be segregated having a
value equal to the total amount of the Fund's obligations.
These arrangements will be made primarily for hedging purposes, to
preserve the return on an investment or on a portion of the Fund's portfolio.
However, the Fund may, as noted above, enter into such arrangements for income
purposes to the extent permitted by the Commodities Futures Trading Commission
(the "CFTC") for entities which are not commodity pool operators, such as the
Fund. In entering a swap arrangement, the Fund is dependent upon the
creditworthiness and good faith of the counterparty. The Fund attempts to reduce
the risks of nonperformance by the counterparty by dealing only with
established, reputable institutions. The swap market is still relatively new and
emerging; positions in swap arrangements may become illiquid to the extent that
nonstandard arrangements with one counterparty are not readily transferable to
another counterparty or if a market for the transfer of swap positions does not
develop. The use of interest rate swaps is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If the Investment Manager is
incorrect in its forecasts of market values, interest rates and other applicable
factors, the investment performance of the Fund would diminish compared with
what it would have been if these investment techniques were not used. Moreover,
even if the Investment Manager is correct in its forecasts, there is a risk that
the swap position may correlate imperfectly with the price of the asset or
liability being hedged.
III-6
<PAGE>
Repurchase Agreements
- ---------------------
The Fund may enter into repurchase agreements. Repurchase agreements
occur when the Fund acquires a security and the seller, which may be either (i)
a primary dealer in U.S. Government securities or (ii) an FDIC-insured bank
having gross assets in excess of $500 million, simultaneously commits to
repurchase it at an agreed-upon price on an agreed-upon date within a specified
number of days (usually not more than seven) from the date of purchase. The
repurchase price reflects the purchase price plus an agreed-upon market rate of
interest which is unrelated to the coupon rate or maturity of the acquired
security. The Fund will only enter into repurchase agreements involving U.S.
Government securities. Repurchase agreements could involve certain risks in the
event of default or insolvency of the other party, including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities.
Repurchase agreements will be limited to 30% of the Fund's net assets, except
that repurchase agreements extending for more than seven days when combined with
any other illiquid securities held by the Fund will be limited to 15% of the
Fund's net assets.
Reverse Repurchase Agreements
- -----------------------------
The Fund may enter into reverse repurchase agreements. In a reverse
repurchase agreement the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker or dealer, in return for
a percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed-upon rate.
The ability to use reverse repurchase agreements may enable, but does not ensure
the ability of, the Fund to avoid selling portfolio instruments at a time when a
sale may be deemed to be disadvantageous.
When effecting reverse repurchase agreements, assets of the Fund in a
dollar amount sufficient to make payment of the obligations to be purchased are
segregated on the Fund's records at the trade date and maintained until the
transaction is settled.
When-Issued Securities
- ----------------------
The Fund may purchase "when-issued" securities, which are traded on a
price or yield basis prior to actual issuance. Such purchases will be made only
to achieve the Fund's investment objective and not for leverage. The when-issued
trading period generally lasts from a few days to months, or over a year or
more; during this period dividends or interest on the securities are not
payable. A frequent form of when-issued trading occurs when corporate securities
to be created by a merger of companies are traded prior to the actual
consummation of the merger. Such transactions may involve a risk of loss if the
value of the securities falls below the price committed to prior to actual
issuance. The custodian holding Fund assets will establish a segregated account
when the Fund purchases securities on a when-issued basis consisting of cash or
liquid securities equal to the amount of the when-issued commitments.
III-7
<PAGE>
Securities transactions involving delayed deliveries or forward commitments are
frequently characterized as when-issued transactions and are similarly treated
by the Fund.
Restricted Securities
- ---------------------
The Fund may invest in restricted securities, including restricted
securities sold in accordance with Rule 144A under the Securities Act of 1933
("Rule 144A Securities"). Securities may be resold pursuant to Rule 144A under
certain circumstances only to qualified institutional buyers as defined in the
rule, and the markets and trading practices for such securities are relatively
new and still developing; depending on the development of such markets, Rule
144A Securities may be deemed to be liquid as determined by or in accordance
with methods adopted by the Trustees for the Fund. Under such methods the
following factors are considered, among others: the frequency of trades and
quotes for the security, the number of dealers and potential purchasers in the
market, market making activity, and the nature of the security and marketplace
trades. Investments in Rule 144A Securities could have the effect of increasing
the level of the Fund's illiquidity to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing such securities. Also, the
Fund may be adversely impacted by the subjective valuation of such securities in
the absence of a market for them. Restricted securities that are not resalable
under Rule 144A may be subject to risks of illiquidity and subjective valuations
to a greater degree than Rule 144A Securities.
Mortgage-Related Securities
- ---------------------------
Each Fund may invest in mortgage-related securities. Mortgage-related
securities represent interests in pools of commercial or residential mortgage
loans. Some mortgage-related securities provide the Fund with a flow-through of
interest and principal payments as such payments are received with respect to
the mortgages in the pool. Mortgage-related securities may be issued by private
entities such as investment banking firms, insurance companies, mortgage bankers
and home builders. Mortgage-related securities may be issued by U.S. Government
agencies, instrumentalities or mixed-ownership corporations or sponsored
enterprises, and the securities may or may not be supported by the credit of
such entities. An issuer may offer senior or subordinated securities backed by
the same pool of mortgages. The senior securities have priority to the interest
and/or principal payments on the mortgages in the pool; the subordinate
securities have a lower priority with respect to such payments on the mortgages
in the pool. The Fund does not presently expect to invest in mortgage pool
residuals.
Mortgage-related securities also include stripped securities which have
been divided into separate interest and principal components. Holders of the
interest components of mortgage related securities will receive payments of the
interest only on the current face amount of the mortgages and holders of the
principal components will receive payments of the principal on the mortgages.
"Interest only" securities are known as IOs; "principal only" securities are
known as POs.
III-8
<PAGE>
In the case of mortgage-related securities, the possibility of
prepayment of the underlying mortgages which might be motivated, for instance,
by declining interest rates, could lessen the potential for total return in
mortgage-related securities. When prepayments of mortgages occur during periods
of declining interest rates, the Fund will have to reinvest the proceeds in
instruments with lower effective interest rates.
In the case of stripped securities, in periods of low interest rates and
rapid mortgage prepayments, the value of IOs for mortgage-related securities can
decrease significantly. The market for IOs and POs is new and there is no
assurance it will operate efficiently or provide liquidity in the future.
Stripped securities are extremely volatile in certain interest rate
environments.
Asset-Backed Securities
- -----------------------
The Fund may invest in asset-backed, which are securities that represent
interests in pools of consumer loans such as credit card receivables, automobile
loans and leases, leases on equipment such as computers, and other financial
instruments. These securities provide a flow-through of interest and principal
payments as payments are received on the loans or leases and may be supported by
letters of credit or similar guarantees of payment by a financial institution.
Foreign Investments
- -------------------
The Fund may invest in securities of non-U.S. issuers directly, or
indirectly in the form of American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") and Global Depositary Receipts ("GDRs").
ADRs are receipts, typically issued by a U.S. bank or trust company,
which evidence ownership of underlying securities issued by a foreign
corporation or other entity. EDRs are receipts issued in Europe which evidence a
similar ownership arrangement. GDRs are receipts issued in one country which
also evidence a similar ownership arrangement. Generally, ADRs in registered
form are designed for use in U.S. securities markets and EDRs are designed for
use in European securities markets. GDRs are designed for use when the issuer is
raising capital in more than one market simultaneously, such as the issuer's
local market and the U.S., and have been used to overcome local selling
restrictions to foreign investors. In addition, many GDRs are eligible for
book-entry settlement through Cedel, Euroclear and DTC. The underlying
securities are not always denominated in the same currency as the ADRs, EDRs or
GDRs. Although investment in the form of ADRs, EDRs or GDRs facilitates trading
in foreign securities, it does not mitigate all the risks associated with
investing in foreign securities.
ADRs are available through facilities which may be either "sponsored" or
"unsponsored." In a sponsored arrangement, the foreign issuer establishes the
facility, pays some or all of the depository's fees, and usually agrees to
provide shareholder
III-9
<PAGE>
communications. In an unsponsored arrangement, the foreign issuer is not
involved, and the ADR holders pay the fees of the depository. Sponsored ADRs are
generally more advantageous to the ADR holders and the issuer than are
unsponsored ADRs. More and higher fees are generally charged in an unsponsored
program compared to a sponsored facility. Only sponsored ADRs may be listed on
the New York or American Stock Exchanges. Unsponsored ADRs may prove to be more
risky due to (a) the additional costs involved to the Fund; (b) the relative
illiquidity of the issue in U.S. markets; and (c) the possibility of higher
trading costs in the over-the-counter market as opposed to exchange based
trading. The Fund will take these and other risk considerations into account
before making an investment in an unsponsored ADR.
The risks associated with investments in foreign securities include
those resulting from fluctuations in currency exchange rates, revaluation of
currencies, future political and economic developments, including the risks of
nationalization or expropriation, the possible imposition of currency exchange
blockages, higher operating expenses, foreign withholding and other taxes which
may reduce investment return, reduced availability of public information
concerning issuers, the difficulties in obtaining and enforcing a judgment
against a foreign issuer and the fact that foreign issuers are not generally
subject to uniform accounting, auditing and financial reporting standards or to
other regulatory practices and requirements comparable to those applicable to
domestic issuers. Moreover, securities of many foreign issuers may be less
liquid and their prices more volatile than those of securities of comparable
domestic issuers.
These risks are usually higher in less-developed countries. Such
countries include countries that have an emerging stock market on which trade a
small number of securities and/or countries with economies that are based on
only a few industries. The Fund may invest in the securities of issuers in
countries with less developed economies as deemed appropriate by the Investment
Manager. However, it is anticipated that a majority of the foreign investments
by the Fund will consist of securities of issuers in countries with developed
economies.
III-10
<PAGE>
Currency Transactions
- ---------------------
The Fund may engage in currency exchange transactions in order to
protect against the effect of uncertain future exchange rates on securities
denominated in foreign currencies. The Fund will conduct its currency exchange
transactions either on a spot (i.e., cash) basis at the rate prevailing in the
currency exchange market, or by entering into forward contracts to purchase or
sell currencies. The Fund's dealings in forward currency exchange contracts will
be limited to hedging involving either specific transactions or aggregate
portfolio positions. A forward currency contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are not commodities and
are entered into in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. In entering a
forward currency contract, the Fund is dependent upon the creditworthiness and
good faith of the counterparty. The Fund attempts to reduce the risks of
nonperformance by the counterparty by dealing only with established, reputable
institutions. Although spot and forward contracts will be used primarily to
protect the Fund from adverse currency movements, they also involve the risk
that anticipated currency movements will not be accurately predicted, which may
result in losses to the Fund. This method of protecting the value of the Fund's
portfolio securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange that can be achieved at some future point in
time. Although such contracts tend to minimize the risk of loss due to a decline
in the value of hedged currency, they tend to limit any potential gain that
might result should the value of such currency increase.
Indexed Securities
- ------------------
Each Fund may purchase securities the value of which is indexed to
interest rates, foreign currencies and various indices and financial
indications, although the Fund does not presently intend to invest more than 5%
of its assets in such securities. These securities are generally short-to
intermediate-term debt securities. The interest rates or values at maturity
fluctuate with the index to which they are connected and may be more volatile
than such index.
Securities Lending
- ------------------
The Fund may lend portfolio securities with a value of up to 33 1/3% of
its total assets. The Fund will receive cash or cash equivalents (e.g., U.S.
Government obligations) as collateral in an amount equal to at least 100% of the
current market value of any loaned securities plus accrued interest. Collateral
received by the Fund will generally be held in the form tendered, although cash
may be invested in unaffiliated mutual funds with quality short-term portfolios,
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities or certain unaffiliated mutual funds, repurchase agreements or
other similar investments. The investing of cash collateral received from
loaning portfolio securities involves leverage which magnifies the potential for
gain or loss on monies invested and,
III-11
<PAGE>
therefore, results in an increase in the volatility of the Fund's outstanding
securities. Such loans may be terminated at any time.
The Fund will retain rights to dividends, interest or other
distributions, on the loaned securities. Voting rights pass with the lending,
although the Fund may call loans to vote proxies if desired. Should the borrower
of the securities fail financially, there is a risk of delay in recovery of the
securities or loss of rights in the collateral. Loans are made only to borrowers
which are deemed by the Investment Manager or its agents to be of good financial
standing.
Short-Term Trading
- ------------------
The Fund may engage in short-term trading of securities and reserves
full freedom with respect to portfolio turnover. In periods where there are
rapid changes in economic conditions and security price levels or when
reinvestment strategy changes significantly, portfolio turnover may be higher
than during times of economic and market price stability or when investment
strategy remains relatively constant. The Fund's portfolio turnover rate may
involve greater transaction costs, relative to other funds in general, and may
have tax and other consequences.
Temporary and Defensive Investments
- -----------------------------------
The Fund may hold up to 100% of its assets in cash or high-quality debt
securities for temporary defensive purposes. The Fund will adopt a temporary
defensive position when, in the opinion of the Investment Manager, such a
position is more likely to provide protection against adverse market conditions
than adherence to the Fund's other investment policies. The types of
high-quality instruments in which the Fund may invest for such purposes include
money market securities, such as repurchase agreements, and securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
certificates of deposit, time deposits and bankers' acceptances of certain
qualified financial institutions and corporate commercial paper, which at the
time of purchase are rated at least within the "A" major rating category by
Standard & Poor's Corporation ("S&P") or the "Prime" major rating category by
Moody's Investor's Service, Inc. ("Moody's"), or, if not rated, issued by
companies having an outstanding long-term unsecured debt issued rated at least
within the "A" category by S&P or Moody's.
Other Investment Companies
- --------------------------
Each Fund may invest in securities of other investment companies,
including affiliated investment companies, such as open- or closed-end
management investment companies, hub and spoke (master/feeder) funds, pooled
accounts or other similar, collective investment vehicles. As a shareholder of
an investment company, the Fund may indirectly bear service and other fees in
addition to the fees the Fund pays its service providers. Similarly, other
investment companies may invest in the Fund. Other investment companies that
invest in the
III-12
<PAGE>
Fund may hold significant portions of the Fund and materially affect the sale
and redemption of Fund shares and the Fund's portfolio transactions.
Computer-Related Risks
- ----------------------
Many mutual funds and other companies that issue securities, as well as
government entities upon whom those mutual funds and companies depend, may be
adversely affected by computer systems (whether their own systems or systems of
their service providers) that do not properly process dates beginning with
January 1, 2000 and information related to those dates.
The Investment Manager currently is in the process of reviewing its
internal computer systems as they relate to the Fund, as well as the computer
systems of those service providers upon which the Fund relies, in order to
obtain reasonable assurances that the Fund will not experience a material
adverse impact related to the problem. The Fund does not currently anticipate
that the problem will have a material adverse impact on its portfolio
investments, taken as a whole. There can be no assurances in the area, however,
including the possibility that the problem could negatively affect the
investment markets or the economy generally.
B. Debt Instruments and Permitted Cash Investments
Each Fund may invest in the following long-term and short-term debt
securities and money market instruments, except as provided below. Please note
that not all of the instruments, techniques and risks described in this part
apply to the Funds identified on the cover page of this Statement of Additional
Information.
Managing Volatility
- -------------------
In administering the Fund's investments, the Investment Manager attempts
to manage the volatility of the Fund's portfolio of debt securities by managing
the duration and weighted average maturity of those securities.
Duration is an indicator of the expected volatility of a bond
portfolio's net asset value in response to changes in interest rates. In
calculating duration, the fund measures the average time required to receive all
cash flows associated with those debt securities -- representing payments of
principal and interest -- by considering the timing, frequency and amount of
payment expected from each portfolio debt security. The higher the duration, the
greater the gains and losses when interest rates change. Duration generally is a
more accurate measure of potential volatility with a portfolio composed of
high-quality debt securities, such as U.S. government securities, municipal
securities and high-grade U.S. corporate bonds, than with lower-grade
securities.
The Investment Manager may use several methods to manage the duration of
the Fund's portfolio of debt securities in order to increase or decrease its
exposure to changes in interest rates. First, the Investment Manager may adjust
duration by adjusting the mix of debt
III-13
<PAGE>
securities held by the Fund. For example, if the Investment Manager intends to
shorten duration, it may sell debt instruments that individually have a long
duration and purchase other debt instruments that individually have a shorter
duration. Among the factors that will affect a debt security's duration are the
length of time to maturity, the timing of interest and principal payments, and
whether the terms of the security give the issuer of the security the right to
call the security prior to maturity. Second, the Investment Manager may adjust
duration using derivative transactions, especially with interest rate futures
and options contracts. For example, if the Investment Manager wants to lengthen
the duration of a Fund's portfolio of debt securities, it could purchase
interest rate futures contracts instead of buying longer-term bonds or selling
shorter-term bonds. Similarly, during periods of lower interest rate volatility,
the Investment Manager may use a technique to extend duration in the event rates
rise by writing an out-of-the-money put option and receiving premium income with
the expectation that the option could be exercised. In managing duration, the
use of such derivatives may be faster and more efficient than trading specific
portfolio securities.
Weighted average maturity is another indicator of potential volatility
used by the Investment Manager with respect to the Fund's portfolio of debt
securities, although for certain types of debt securities, such as high quality
debt securities, it is not as accurate as duration in quantifying potential
volatility. Weighted average maturity is the average of all maturities of the
individual debt securities held by the Fund, weighted by the market value of
each security. Generally, the longer the weighted average maturity, the more
Fund price will vary in response to changes in interest rates.
U.S. Government and Related Securities
- --------------------------------------
U.S. Government securities are securities which are issued or guaranteed
as to principal or interest by the U.S. Government, a U.S. Government agency or
instrumentality, or certain mixed-ownership Government corporations as described
herein. The U.S. Government securities in which the Fund invests include, among
others:
o direct obligations of the U.S. Treasury, i.e., U.S. Treasury bills,
notes, certificates and bonds;
o obligations of U.S. Government agencies or instrumentalities such as the
Federal Home Loan Banks, the Federal Farm Credit Banks, the Federal
National Mortgage Association, the Government National Mortgage
Association and the Federal Home Loan Mortgage Corporation; and
o obligations of mixed-ownership Government corporations such as
Resolution Funding Corporation.
U.S. Government securities which the Fund may buy are backed in a
variety of ways by the U.S. Government, its agencies or instrumentalities. Some
of these obligations, such as Government National Mortgage Association
mortgage-backed securities, are backed by the full
III-14
<PAGE>
faith and credit of the U.S. Treasury. Other obligations, such as those of the
Federal National Mortgage Association, are backed by the discretionary authority
of the U.S. Government to purchase certain obligations of agencies or
instrumentalities, although the U.S. Government has no legal obligation to do
so. Obligations such as those of the Federal Home Loan Bank, the Federal Farm
Credit Bank, the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation are backed by the credit of the agency or instrumentality
issuing the obligations. Certain obligations of Resolution Funding Corporation,
a mixed-ownership Government corporation, are backed with respect to interest
payments by the U.S. Treasury, and with respect to principal payments by U.S.
Treasury obligations held in a segregated account with a Federal Reserve Bank.
Except for certain mortgage-related securities, the Fund will only invest in
obligations issued by mixed-ownership Government corporations where such
securities are guaranteed as to payment of principal or interest by the U.S.
Government or a U.S. Government agency or instrumentality, and any unguaranteed
principal or interest is otherwise supported by U.S. Government obligations held
in a segregated account.
U.S. Government securities may be acquired by the Fund in the form of
separately traded principal and interest components of securities issued or
guaranteed by the U.S. Treasury. The principal and interest components of
selected securities are traded independently under the Separate Trading of
Registered Interest and Principal of Securities ("STRIPS") program. Under the
STRIPS program, the principal and interest components are individually numbered
and separately issued by the U.S. Treasury at the request of depository
financial institutions, which then trade the component parts independently.
Obligations of Resolution Funding Corporation are similarly divided into
principal and interest components and maintained as such on the book entry
records of the Federal Reserve Banks.
In addition, the Fund may invest in custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Treasury notes or bonds in connection with programs sponsored by banks and
brokerage firms. Such notes and bonds are held in custody by a bank on behalf of
the owners of the receipts. These custodial receipts are known by various names,
including "Treasury Receipts" ("TRs"), "Treasury Investment Growth Receipts"
("TIGRs") and "Certificates of Accrual on Treasury Securities" ("CATS"), and may
not be deemed U.S. Government securities.
The Fund may also invest from time to time in collective investment
vehicles, the assets of which consist principally of U.S. Government securities
or other assets substantially collateralized or supported by such securities,
such as Government trust certificates.
Foreign Government Debt
- -----------------------
The obligations of foreign governmental entities have various kinds of
government support and include obligations issued or guaranteed by foreign
governmental entities with taxing powers. These obligations may or may not be
supported by the full faith and credit of a foreign government. Each Fund may
invest in foreign government securities of issuers
III-15
<PAGE>
considered stable by the Investment Manager, based on its analysis of factors
such as general political or economic conditions relating to the government and
the likelihood of expropriation, nationalization, freezes or confiscation of
private property. The Investment Manager does not believe that the credit risk
inherent in the obligations of stable foreign governments is significantly
greater than that of U.S. Government securities.
Supranational Debt
- ------------------
Supranational debt may be denominated in U.S. dollars, a foreign
currency or a multi-national currency unit. Examples of supranational entities
include the World Bank, the European Investment Bank, the Asian Development Bank
and the Inter-American Development Bank. The governmental members, or
"stockholders", usually make initial capital contributions to the supranational
entity and in many cases are committed to make additional capital contributions
if the supranational entity is unable to repay its borrowings.
Foreign Currency Units
- ----------------------
The Fund may invest in securities denominated in a multi-national
currency unit. An illustration of a multi-national currency unit is the European
Currency Unit (the "ECU"), which is a "basket" consisting of specified amounts
of the currencies of the member states of the European Community, a Western
European economic cooperative organization that includes France, Germany, The
Netherlands and the United Kingdom. The specific amounts of currencies
comprising the ECU may be adjusted by the Council of Ministers of the European
Community to reflect changes in relative values of the underlying currencies.
The Sub-Investment Manager does not believe that such adjustments will adversely
affect holders of ECU-denominated obligations or the marketability of such
securities. European supranational entities, in particular, issue
ECU-denominated obligations. The Fund may invest in securities denominated in
the currency of one nation although issued by a governmental entity, corporation
or financial institution of another nation. For example, the Fund may invest in
a British pound sterling-denominated obligation issued by a United States
corporation. Such investments involve credit risks associated with the issuer
and currency risks associated with the currency in which the obligation is
denominated.
Synthetic Non-U.S. Money Market Positions
- -----------------------------------------
Money market securities denominated in foreign currencies are
permissible investments of the Fund. In addition to, or in lieu of direct
investment in such securities, the Fund may construct a synthetic non-U.S. money
market position by (i) purchasing a money market instrument denominated in U.S.
dollars and (ii) concurrently entering into a forward currency contract to
deliver a corresponding amount of U.S. dollars in exchange for a foreign
currency on a future date and a specified rate of exchange. Because of the
availability of a variety of highly liquid short-term U.S. dollar-denominated
money market instruments, a synthetic money market position utilizing such U.S.
dollar-denominated instruments may offer greater
III-16
<PAGE>
liquidity than direct investment in a money market instrument denominated in a
foreign currency.
Bank Money Investments
- ----------------------
Bank money investments include, but are not limited to, certificates of
deposit, bankers' acceptances and time deposits. Certificates of deposit are
generally short-term (i.e., less than one year), interest-bearing negotiable
certificates issued by commercial banks or savings and loan associations against
funds deposited in the issuing institution. A banker's acceptance is a time
draft drawn on a commercial bank by a borrower, usually in connection with an
international commercial transaction (to finance the import, export, transfer or
storage of goods). A banker's acceptance may be obtained from a domestic or
foreign bank, including a U.S. branch or agency of a foreign bank. The borrower
is liable for payment as well as the bank, which unconditionally guarantees to
pay the draft at its face amount on the maturity date. Most acceptances have
maturities of six months or less and are traded in secondary markets prior to
maturity. Time deposits are nonnegotiable deposits for a fixed period of time at
a stated interest rate. The Fund will not invest in any such bank money
investment unless the investment is issued by a U.S. bank that is a member of
the Federal Deposit Insurance Corporation ("FDIC"), including any foreign branch
thereof, a U.S. branch or agency of a foreign bank, a foreign branch of a
foreign bank, or a savings bank or savings and loan association that is a member
of the FDIC and which at the date of investment has capital, surplus and
undivided profits (as of the date of its most recently published financial
statements) in excess of $50 million. The Fund will not invest in time deposits
maturing in more than seven days and will not invest more than 10% of its total
assets in time deposits maturing in two to seven days.
U.S. branches and agencies of foreign banks are offices of foreign banks
and are not separately incorporated entities. They are chartered and regulated
either federally or under state law. U.S. federal branches or agencies of
foreign banks are chartered and regulated by the Comptroller of the Currency,
while state branches and agencies are chartered and regulated by authorities of
the respective states or the District of Columbia. U.S. branches of foreign
banks may accept deposits and thus are eligible for FDIC insurance; however, not
all such branches elect FDIC insurance. Unlike U.S. branches of foreign banks,
U.S. agencies of foreign banks may not accept deposits and thus are not eligible
for FDIC insurance. Both branches and agencies can maintain credit balances,
which are funds received by the office incidental to or arising out of the
exercise of their banking powers and can exercise other commercial functions,
such as lending activities.
Short-Term Corporate Debt Instruments
- -------------------------------------
Short-term corporate debt instruments include commercial paper to
finance short-term credit needs (i.e., short-term, unsecured promissory notes)
issued by, among others, (a) corporations and (b) domestic or foreign bank
holding companies or their subsidiaries or affiliates where the debt instrument
is guaranteed by the bank holding company or an affiliated
III-17
<PAGE>
bank or where the bank holding company or the affiliated bank is unconditionally
liable for the debt instrument. Commercial paper is usually sold on a discounted
basis and has a maturity at the time of issuance not exceeding nine months.
Lower Rated Debt Securities
- ---------------------------
The Fund may invest in debt securities within the BB major rating
category or lower by S&P or the Ba major rating category or lower by Moody's or
debt securities that are unrated but considered by the Investment Manager to be
of equivalent investment quality to comparable rated securities. Such securities
generally involve more credit risk than higher rated securities and are
considered by S&P and Moody's to be predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the terms of the
obligation. Further, such securities may be subject to greater market
fluctuations and risk of loss of income and principal than lower yielding,
higher rated debt securities. Risks of lower quality debt securities include (i)
limited liquidity and secondary market support, (ii) substantial market price
volatility resulting from changes in prevailing interest rates an/or investor
perception, (iii) subordination to the prior claims of banks and other senior
lenders, (iv) the operation of mandatory sinking fund or call/redemption
provisions during periods of declining interest rates when the fund may be
required to reinvest premature redemption proceeds in lower yielding portfolio
securities; (v) the possibility that earnings of the issuer may be insufficient
to meet its debt service; and (vi) the issuer's low creditworthiness and
potential for insolvency during periods of rising interest rates and economic
downturn. For further information concerning the ratings of debt securities, see
"--Commercial Paper Ratings" and "--Rating Categories of Debt Securities,"
below. In the event the rating of a security is downgraded, the Investment
Manager will determine whether the security should be retained or sold depending
on an assessment of all facts and circumstances at that time.
Zero and Step Coupon Securities
- -------------------------------
Zero and step coupon securities are debt securities that may pay no
interest for all or a portion of their life but are purchased at a discount to
face value at maturity. Their return consists of the amortization of the
discount between their purchase price and their maturity value, plus in the case
of a step coupon, any fixed rate interest income. Zero and step coupon
securities pay no interest to holders prior to maturity even though interest on
these securities is reported as income to the Fund. The Fund will be required to
distribute all or substantially all of such amounts annually to its
shareholders. These distributions may cause the Fund to liquidate portfolio
assets in order to make such distributions at a time when the Fund may have
otherwise chosen not to sell such securities. The amount of the discount
fluctuates with the market value of such securities, which may be more volatile
than that of securities which pay interest at regular intervals.
III-18
<PAGE>
Certain Ratings Categories
- --------------------------
Commercial Paper Ratings.
Commercial paper investments at the time of purchase will be rated
within the "A" major rating category by S&P or within the "Prime" major rating
category by Moody's, or, if not rated, issued by companies having an outstanding
long-term unsecured debt issue rated at least within the "A" category by S&P or
by Moody's. The money market investments in corporate bonds and debentures
(which must have maturities at the date of settlement of one year or less) must
be rated at the time of purchase at least within the "A" category by S&P or
within the "Prime" category by Moody's.
Commercial paper rated within the "A" category (highest quality) by S&P
is issued by entities which have liquidity ratios which are adequate to meet
cash requirements. Long-term senior debt is rated within the "A" category or
better, although in some cases credits within the "BBB" category may be allowed.
The issuer has access to at least two additional channels of borrowing. Basic
earnings and cash flow have an upward trend with allowance made for unusual
circumstances. Typically, the issuer's industry is well established and the
issuer has a strong position within the industry. The reliability and quality of
management are unquestioned. The relative strength or weakness of the above
factors determines whether the issuer's commercial paper is rated A-1, A-2 or
A-3. (Those A-1 issues determined to possess overwhelming safety characteristics
are denoted with a plus (+) sign: A-1+.)
The rating "Prime" is the highest commercial paper rating category
assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: evaluation of the management of the issuer; economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; evaluation of the
issuer's products in relation to competition and customer acceptance; liquidity;
amount and quality of long-term debt; trend of earnings over a period of 10
years; financial management of obligations which may be present or may arise as
a result of public interest questions and preparations to meet such obligations.
These factors are all considered in determining whether the commercial paper is
rated Prime-1, Prime-2 or Prime-3.
Rating Categories of Debt Securities.
Set forth below is a description of S&P corporate bond and debenture
rating categories:
AAA: An obligation rated within the AAA category has the highest rating
assigned by S&P. Capacity to meet the financial commitment on the obligation is
extremely strong.
AA: An obligation rated within the AA category differs from the highest
rated obligation only in small degree. Capacity to meet the financial obligation
is very strong.
III-19
<PAGE>
A: An obligation rated within the A category is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories. However, capacity to meet the
financial commitment on the obligation is still strong.
BBB: An obligation rated within the BBB category exhibits adequate
protection parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to meet the
financial commitment on the obligation.
Obligations rated within the BB, B, CCC, CC and C categories are
regarded as having significant speculative characteristics. BB indicates the
least degree of speculation and C the highest. While such obligations will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions.
BB: An obligation rated within the BB category is less vulnerable to
nonpayment than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or economic conditions
which could lead to inadequate capacity to meet the financial commitment on the
obligation. The BB rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BBB rating.
B: An obligation rated within the B category is more vulnerable to
nonpayment than obligations rated within the BB category, but currently has the
capacity to meet the financial commitment on the obligation. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
meet the financial commitment on the obligation. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC: An obligation rated within the CCC category is vulnerable to
nonpayment and is dependent upon favorable business, financial and economic
conditions to meet the financial commitment on the obligation. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to meet the financial commitment on the obligation.
CC: An obligation rated within the CC category is currently highly
vulnerable to nonpayment.
C: The C rating may be used to cover a situation where a bankruptcy
petition has been filed, but payments on this obligation are being continued.
D: An obligation rated within the D category is in payment default. The
D rating category is used when payments on an obligation are not made on the
date due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The D rating
also will be used upon the filing of a bankruptcy petition or the taking of a
similar action if payments on an obligation are jeopardized.
III-20
<PAGE>
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
S&P may attach the "r" symbol to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayments risks-such as interest only (IO) and
principal only (PO) mortgage securities; and obligations with unusually risky
terms, such as inverse floaters.
Set forth below is a description of Moody's corporate bond and debenture
rating categories:
Aaa: Bonds which are rated within the Aaa category are judged to be of
the best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt-edge." Interest payments are protected by a large
or by an exceptionally stable margin, and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated within the Aa category are judged to be of
high quality by all standards. Together with the Aaa group they comprise what
are generally known as high-grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risks appear somewhat larger
than in Aaa securities.
A: Bonds which are rated within the A category possess many favorable
investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa: Bonds which are rated within the Baa category are considered as
medium grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba: Bonds which are rated within the Ba category are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during other good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
III-21
<PAGE>
B: Bonds which are rated within the B category generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small.
Caa: Bonds which are rated within the Caa category are of poor standing.
Such issues may be in default or there may be present elements of danger with
respect to principal or interest.
Ca: Bonds which are rated within the Ca category represent obligations
which are speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C: Bonds which are rated within the C category are the lowest rated
class of bonds, and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
1, 2 or 3: The ratings from Aa through B may be modified by the addition
of a numeral indicating a bond's rank within its rating category.
Ratings Downgrades.
In the event the lowering of ratings of debt instruments held by the
Fund by applicable rating agencies results in a material decline in the overall
quality of the Fund's portfolio, the Trustees of the Trust will review the
situation and take such action as they deem in the best interests of the Fund's
shareholders, including, if necessary, changing the composition of the
portfolio.
C. The Trusts, the Trustees and Officers and Fund Shares
The Trustees of a Trust have authority to issue an unlimited number of
shares of beneficial interest of separate series, $.001 par value per share. The
Trustees also have authority, without the necessity of a shareholder vote, to
create any number of new series or classes or to commence the public offering of
shares of any previously established series or classes. The Trustees have
authorized shares of each Fund to be issued in five classes:
Class A, Class B(1), Class B, Class C and Class S shares.
Each share of each class of shares represents an identical legal
interest in the same portfolio of investments of a Fund, has the same rights and
is identical in all respects, except that Class A, Class B(1), Class B and Class
C shares bear the expenses of the deferred sales arrangement and any expenses
(including the higher service and distribution fees) resulting from such sales
arrangement, and certain other incremental expenses related to a class. Each
class will have exclusive voting rights with respect to provisions of the Rule
12b-1 distribution plan pursuant to which the service and distribution fees, if
any, are paid. Although the legal rights of holders of each class of shares are
identical, it is likely that the different expenses
III-22
<PAGE>
borne by each class will result in different net asset values and dividends. The
different classes of shares of the Fund also have different exchange privileges.
Except for those differences between classes of shares described above, in the
Fund's Prospectus and otherwise this Statement of Additional Information, each
share of the Fund has equal dividend, redemption and liquidation rights with
other shares of the Fund, and when issued, is fully paid and nonassessable by
the Fund.
The rights of holders of shares may be modified by the Trustees at any
time, so long as such modifications do not have an adverse effect on the rights
of any shareholder. On any matter submitted to the shareholders, the holder of a
Fund share is entitled to one vote per share (with proportionate voting for
fractional shares) regardless of the relative net asset value thereof.
Under each Trust's Master Trust Agreement, no annual or regular meeting
of shareholders is required. Thus, there ordinarily will be no shareholder
meetings unless required by the 1940 Act. Except as otherwise provided under the
1940 Act, the Board of Trustees will be a self-perpetuating body until fewer
than two-thirds of the Trustees serving as such are Trustees who were elected by
shareholders of the Trust. In the event less than a majority of the Trustees
serving as such were elected by shareholders of the Trust, a meeting of
shareholders will be called to elect Trustees. Under the Master Trust Agreement,
any Trustee may be removed by vote of two-thirds of the outstanding Trust
shares; holders of 10% or more of the outstanding shares of the Trust can
require that the Trustees call a meeting of shareholders for purposes of voting
on the removal of one or more Trustees. In connection with such meetings called
by shareholders, shareholders will be assisted in shareholder communications to
the extent required by applicable law.
Under Massachusetts law, the shareholders of a Trust could, under
certain circumstances, be held personally liable for the obligations for the
Trust. However, each Master Trust Agreement disclaims shareholder liability for
acts or obligations of the Trust and provides for indemnification for all losses
and expenses of any shareholder of the Fund held personally liable for the
obligations of the Trust. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
the Fund would be unable to meet its obligations. The Investment Manager
believes that, in view of the above, the risk of personal liability to
shareholders is remote.
The Trustees and officers of each Trust are identified below, together
with biographical information.
III-23
<PAGE>
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
STATE STREET Capital Equity Exchange Financial Growth Income
RESEARCH Trust Trust Trust Trust Trust Trust
------ ------ ------- --------- ------- -----
TRUSTEES AND
PRINCIPAL
OFFICERS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Peter C. Bennett Vice Vice Vice Vice Vice Vice
President President President President President President
- ------------------------------------------------------------------------------------------------------
Bruce R. Bond Trustee Trustee Trustee Trustee Trustee Trustee
- ------------------------------------------------------------------------------------------------------
Jesus A. Cabrera Vice
President
- ------------------------------------------------------------------------------------------------------
Paul J. Clifford, Jr.
- ------------------------------------------------------------------------------------------------------
Thomas J. Dillman
- ------------------------------------------------------------------------------------------------------
Steve A. Garban Trustee Trustee Trustee Trustee Trustee Trustee
- ------------------------------------------------------------------------------------------------------
Bartlett R. Geer Vice Vice
President President
- ------------------------------------------------------------------------------------------------------
Lawrence J. Haverty, Jr. Vice
President
- ------------------------------------------------------------------------------------------------------
Malcolm T. Hopkins Trustee Trustee Trustee Trustee Trustee Trustee
- ------------------------------------------------------------------------------------------------------
F. Gardner Jackson, Jr. Vice
President
- ------------------------------------------------------------------------------------------------------
Richard J. Jodka Vice
President
- ------------------------------------------------------------------------------------------------------
John H. Kallis Vice Vice
President President
- ------------------------------------------------------------------------------------------------------
Dyann H. Kiessling
- ------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
STATE STREET Master Money
RESEARCH Investment Market Portfolios, Securities Tax-Exempt
Trust Trust Inc. Trust Trust
---------- ------ ---------- ---------- ----------
TRUSTEES AND
PRINCIPAL
OFFICERS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Peter C. Bennett Vice President Vice President Vice President
- --------------------------------------------------------------------------------------------------------------------------
Bruce R. Bond Trustee Trustee Trustee Trustee
- --------------------------------------------------------------------------------------------------------------------------
Jesus A. Cabrera
- --------------------------------------------------------------------------------------------------------------------------
Paul J. Clifford, Jr. Vice President
- --------------------------------------------------------------------------------------------------------------------------
Thomas J. Dillman Vice President
- --------------------------------------------------------------------------------------------------------------------------
Steve A. Garban Trustee Trustee Director Trustee Trustee
- --------------------------------------------------------------------------------------------------------------------------
Bartlett R. Geer Vice President
- --------------------------------------------------------------------------------------------------------------------------
Lawrence J. Haverty, Jr.
- --------------------------------------------------------------------------------------------------------------------------
Malcolm T. Hopkins Trustee Trustee Director Trustee Trustee
- --------------------------------------------------------------------------------------------------------------------------
F. Gardner Jackson, Jr.
- --------------------------------------------------------------------------------------------------------------------------
Richard J. Jodka
- --------------------------------------------------------------------------------------------------------------------------
John H. Kallis Vice President Vice President Vice President
- --------------------------------------------------------------------------------------------------------------------------
Dyann H. Kiessling Vice President
- --------------------------------------------------------------------------------------------------------------------------
III-24
<PAGE>
<CAPTION>
STATE STREET Capital Equity Exchange Financial Growth Income
RESEARCH Trust Trust Trust Trust Trust Trust
------- ------ -------- --------- ----- -----
TRUSTEES AND
PRINCIPAL
OFFICERS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Rudoph K. Kluiber Vice
President
- ------------------------------------------------------------------------------------------------------
Francis J. McNamara, III Secretary Secretary Secretary Secretary Secretary Secretary
- ------------------------------------------------------------------------------------------------------
Gerard P. Maus Treasurer Treasurer Treasurer Treasurer Treasurer Treasurer
- ------------------------------------------------------------------------------------------------------
Thomas P. Moore, Jr. Vice Vice
President President
- ------------------------------------------------------------------------------------------------------
Dean O. Morton Trustee Trustee Trustee Trustee Trustee Trustee
- ------------------------------------------------------------------------------------------------------
Christopher P. Nicholas
- ------------------------------------------------------------------------------------------------------
Brian P. O'Dell Vice
President
- ------------------------------------------------------------------------------------------------------
Kim M. Peters
- ------------------------------------------------------------------------------------------------------
Susan M. Phillips Trustee Trustee Trustee Trustee Trustee
- ------------------------------------------------------------------------------------------------------
E.K. Easton Ragsdale, Jr. Vice
President
- ------------------------------------------------------------------------------------------------------
Daniel J. Rice III Vice
President
- ------------------------------------------------------------------------------------------------------
Toby Rosenblatt Trustee Trustee Trustee Trustee Trustee Trustee
- ------------------------------------------------------------------------------------------------------
Michael S. Scott Morton Trustee Trustee Trustee Trustee Trustee Trustee
- ------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
Master Money
STATE STREET Investment Market Portfolios, Securities Tax-Exempt
RESEARCH Trust Trust Inc. Trust Trust
---------- ----- ----------- ---------- ----------
TRUSTEES AND
PRINCIPAL
OFFICERS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rudoph K. Kluiber
- --------------------------------------------------------------------------------------------------------------------------
Francis J. McNamara, III Secretary Secretary Secretary Secretary Secretary
- --------------------------------------------------------------------------------------------------------------------------
Gerard P. Maus Treasurer Treasurer Treasurer Treasurer Treasurer
- --------------------------------------------------------------------------------------------------------------------------
Thomas P. Moore, Jr. Vice President
- --------------------------------------------------------------------------------------------------------------------------
Dean O. Morton Trustee Trustee Director Trustee Trustee
- --------------------------------------------------------------------------------------------------------------------------
Christopher P. Nicholas Assistant
Secretary
- --------------------------------------------------------------------------------------------------------------------------
Brian P. O'Dell
- --------------------------------------------------------------------------------------------------------------------------
Kim M. Peters Vice President
- --------------------------------------------------------------------------------------------------------------------------
Susan M. Phillips Trustee Trustee Trustee Trustee
- --------------------------------------------------------------------------------------------------------------------------
E.K. Easton Ragsdale, Jr.
- --------------------------------------------------------------------------------------------------------------------------
Daniel J. Rice III
- --------------------------------------------------------------------------------------------------------------------------
Toby Rosenblatt Trustee Trustee Director Trustee Trustee
- --------------------------------------------------------------------------------------------------------------------------
Michael S. Scott Morton Trustee Trustee Director Trustee Trustee
- --------------------------------------------------------------------------------------------------------------------------
III-25
<PAGE>
<CAPTION>
STATE STREET Capital Equity Exchange Financial Growth Income
RESEARCH Trust Trust Trust Trust Trust Trust
------- ------ -------- --------- ------ -------
TRUSTEES AND
PRINCIPAL
OFFICERS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas A. Shively Vice Vice
President President
- ------------------------------------------------------------------------------------------------------
Ralph F. Verni Trustee, Trustee, Trustee, Trustee, Trustee, Trustee,
Chairman of Chairman of Chairman of Chairman of Chairman of Chairman of
the Board, the Board, the Board, the Board, the Board, the Board,
President President President President President President
and Chief and Chief and Chief and Chief and Chief and Chief
Executive Executive Executive Executive Executive Executive
Officer Officer Officer Officer Officer Officer
- ------------------------------------------------------------------------------------------------------
Dudley F. Wade Vice
President
- ------------------------------------------------------------------------------------------------------
James M. Weiss Vice Vice Vice Vice Vice Vice
President President President President President President
- ------------------------------------------------------------------------------------------------------
Elizabeth M. Westvold
- ------------------------------------------------------------------------------------------------------
John T. Wilson Vice
President
- ------------------------------------------------------------------------------------------------------
Kennard P. Woodworth, Jr. Vice Vice
President President
- ------------------------------------------------------------------------------------------------------
Peter A. Zuger Vice
President
- ------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
Master Money
STATE STREET Investment Market Portfolios, Securities Tax-Exempt
RESEARCH Trust Trust Inc. Trust Trust
---------- ------ ----------- ---------- ----------
TRUSTEES AND
PRINCIPAL
OFFICERS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Thomas A. Shively Vice President Vice President Vice President
- --------------------------------------------------------------------------------------------------------------------------
Ralph F. Verni Trustee, Trustee, Director, Trustee, Trustee,
Chairman of Chairman of Chairman of Chairman of Chairman of
the Board the Board the Board the Board the Board,
President President President President President
and Chief and Chief and Chief and Chief and Chief
Executive Executive Executive Executive Executive
Office Officer Officer Officer Officer
- --------------------------------------------------------------------------------------------------------------------------
Dudley F. Wade Vice President
- --------------------------------------------------------------------------------------------------------------------------
James M. Weiss Vice President Vice President Vice President
- --------------------------------------------------------------------------------------------------------------------------
Elizabeth M. Westvold Vice President
- --------------------------------------------------------------------------------------------------------------------------
John T. Wilson Vice President
- --------------------------------------------------------------------------------------------------------------------------
Kennard P. Woodworth, Jr. Vice President
- --------------------------------------------------------------------------------------------------------------------------
Peter A. Zuger
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
III-26
<PAGE>
Additional information on the Trustees, Directors and principal officers
of the State Street Research Funds is provided below. (Unless otherwise
indicated, the address for each person is One Financial Center, Boston,
Massachusetts 02111.)
*Peter C. Bennett: He is 61 and his principal occupation is currently,
and during the past five years has been, Executive Vice President of the
Investment Manager. Mr. Bennett is also a Director and Chief Investment
Officer-Equity of the Investment Manager. Mr. Bennett's other principal business
affiliations include Director, State Street Research Investment Services, Inc.
Bruce R. Bond (100 Minuteman Road, Andover, MA 01810): He is 53 and his
principal occupation is Chairman of the Board, Chief Executive Officer and
President of PictureTel Corporation. During the past five years, Mr. Bond has
also served as Chief Executive Officer of ANS Communications (a communications
networking company) and as managing director of British Telecommunications PLC.
*Jesus A. Cabrera: He is 37 and his principal occupation is Senior Vice
President of the Investment Manager. During the past five years he has also
served as Vice President of the Investment Manager and as Vice President at
First Chicago Investment Management Company.
*Paul J. Clifford, Jr.: He is 37 and his principal occupation is
currently, and during the past five years has been, Vice President of the
Investment Manager.
*Thomas J. Dillman: He is 50 and his principal occupation is Senior Vice
President of the Investment Manager. During the past five years he has also
served as research director at Bank of New York.
+Steve A. Garban (The Pennsylvania State University, 210 Old Main,
University Park, PA 16802): He is 61 and he is retired and was formerly Senior
Vice President for Finance and Operations and Treasurer of The Pennsylvania
State University. Mr. Garban is also a Director of Metropolitan Series Fund,
Inc. (an investment company).
*Bartlett R. Geer: He is 44 and his principal occupation is currently,
and during the past five years has been, Senior Vice President of the Investment
Manager.
*Lawrence J. Haverty, Jr.: He is 55 and his principal occupation is
currently, and during the past five years has been, Senior Vice President of the
Investment Manager.
+Malcolm T. Hopkins (14 Brookside Road, Biltmore Forest, Asheville, NC
28803): He is 71 and he is engaged principally in private investments.
Previously, he was Vice Chairman of the Board and Chief Financial Officer of St.
Regis Corp. Mr. Hopkins is also a Director of Metropolitan Series Fund, Inc. (an
investment company).
III-27
<PAGE>
*Richard J. Jodka: He is 55 and his principal occupation is Senior Vice
President of the Investment Manager. During the past five years he has also
served as a portfolio manager at Frontier Capital Management and Putnam
Investments.
*John H. Kallis: He is 58 and his principal occupation is currently, and
during the past five years has been, Senior Vice President of the Investment
Manager.
*Dyann H. Kiessling: She is 36 and her principal occupation is Vice
President of the Investment Manager. During the past five years she has also
served as a fixed income trader for the Investment Manager.
*Rudolph K. Kluiber: He is 39 and his principal occupation currently is
Senior Vice President of the Investment Manager. During the past five years he
has also served as a Vice President of the Investment Manager.
*Gerard P. Maus: He is 48 and his principal occupation is Executive Vice
President, Treasurer, Chief Financial Officer, Chief Administrative Officer, and
Director of the Investment Manager. Mr. Maus's other principal business
affiliations include Executive Vice President, Chief Financial Officer, Chief
Administrative Officer, Treasurer and Director of State Street Research
Investment Services, Inc.; Treasurer and Chief Financial Officer of SSRM
Holdings, Inc.; and Director of SSR Realty Advisors, Inc.
*Francis J. McNamara, III: He is 44 and his principal occupation is
Executive Vice President, General Counsel and Secretary of the Investment
Manager. During the past five years he has also served as Senior Vice President
of the Investment Manager and as Senior Vice President and General Counsel of
The Boston Company Inc., Boston Safe Deposit and Trust Company and The Boston
Company Advisors, Inc. Mr. McNamara's other principal business affiliations
include Executive Vice President, General Counsel and Clerk of State Street
Research Investment Services, Inc.; and Secretary and General Counsel of SSRM
Holdings, Inc.
+Dean O. Morton (3200 Hillview Avenue, Palo Alto, CA 94304): He is 67
and he is retired and was formerly Executive Vice President, Chief Operating
Officer and Director of Hewlett-Packard Company. Mr. Morton is also a Director
of Metropolitan Series Fund, Inc. (an investment company).
*Kim M. Peters: He is 46 and his principal occupation is Senior Vice
President of the Investment Manager. During the past five years he has also
served as Vice President of the Investment Manager.
Susan M. Phillips (The George Washington University, 710 21st Street,
Suite 206, Washington, DC 20052): She is 54 and her principal occupation is
currently Dean of the School of Business and Public Management at George
Washington University and Professor of
III-28
<PAGE>
Finance. Previously, she was a member of the Board of Governors of the Federal
Reserve System and Chairman and Commissioner of the Commodity Futures Trading
Commission.
*E.K. Easton Ragsdale, Jr.: He is 47 and his principal occupation is
Senior Vice President of the Investment Manager. During the past five years he
has also served as Vice President of the Investment Manager and as Senior Vice
President and Chief Quantitative Analyst for Kidder Peabody & Co.
*Daniel J. Rice III: He is 47 and his principal occupation is currently
Senior Vice President of the Investment Manager. During the past five years he
has also served as Vice President of the Investment Manager.
Toby Rosenblatt (3409 Pacific Avenue, San Francisco, CA 94118): He is 61
and his principal occupations during the past five years have been President of
Founders Investments Ltd. and President of The Glen Ellen Company, a private
investment company.
+Michael S. Scott Morton (Massachusetts Institute of Technology, 77
Massachusetts Avenue, Cambridge, MA 02139): He is 62 and his principal
occupation during the past five years has been Jay W. Forrester Professor of
Management at Sloan School of Management, Massachusetts Institute of Technology.
Dr. Scott Morton is also a Director of Metropolitan Series Fund, Inc. (an
investment company).
*Thomas A. Shively: He is 45 and his principal occupation is currently,
and during the past five years has been, Executive Vice President of the
Investment Manager. Mr. Shively is also a Director and Chief Investment
Officer-Fixed Income of the Investment Manager. Mr. Shively's other principal
business affiliations include Director of State Street Research Investment
Services, Inc.
*Ralph F. Verni: He is 56 and his principal occupation is currently, and
during the past five years has been, Chairman of the Board, President, Chief
Executive Officer and Director of State Street Research & Management Company.
Mr. Verni's other principal business affiliations include Chairman of the Board
and Director of State Street Research Investment Services, Inc. (and until
February 1996, prior positions as President and Chief Executive Officer of that
company).
*James M. Weiss: He is 53 and his principal occupation is Executive Vice
President of the Investment Manager. During the past five years he has also
served as Senior Vice President of the Investment Manager and as President and
Chief Investment Officer of IDS Equity Advisors.
*Elizabeth M. Westvold: She is 39 and her principal occupation is Senior
Vice President of the Investment Manager. During the past five years she has
also served as Vice President and as an analyst for the Investment Manager.
III-29
<PAGE>
*John T. Wilson: He is 36 and his principal occupation is Senior Vice
President of the Investment Manager. During the past five years he has also
served as a Vice President of the Investment Manager, as an analyst and
portfolio manager at Phoenix Home Life Mutual Insurance Company and as a Vice
President of Phoenix Investment Counsel Inc.
*Kennard Woodworth, Jr.: He is 61 and his principal occupation is
currently, and during the past five years has been, Senior Vice President of the
Investment Manager.
*Peter A. Zuger (One Financial Center, Boston, MA 02111): He is 51. His
principal occupation is Senior Vice President of State Street Research &
Management Company. During the past five years he has also served as Vice
President of American Century Investment Management Company.
- -----------------
* These Trustees and/or Officers are deemed to be "interested persons" of
the Trust under the 1940 Act because of their affiliations with the
Fund's investment adviser.
+ Serves as a Director of Metropolitan Series Fund, Inc., which has an
advisory relationship with the Investment Manager or its parent,
Metropolitan Life Insurance Company ("Metropolitan")
III-30
<PAGE>
D. Investment Advisory Services
Under the provisions of each Trust's Master Trust Agreement and the laws
of Massachusetts, responsibility for the management and supervision of the Fund
rests with the Trustees.
State Street Research & Management Company, the Investment Manager, a
Delaware corporation, with offices at One Financial Center, Boston,
Massachusetts 02111-2690, acts as investment adviser to the Fund. The Investment
Manager was founded by Paul Cabot, Richard Saltonstall and Richard Paine to
serve as investment adviser to one of the nation's first mutual funds, presently
known as State Street Research Investment Trust, which they had formed in 1924.
Their investment management philosophy emphasized comprehensive fundamental
research and analysis, including meetings with the management of companies under
consideration for investment. The Investment Manager's portfolio management
group has extensive investment industry experience managing equity and debt
securities.
The Investment Manager is charged with the overall responsibility for
managing the investments and business affairs of each Fund, subject to the
authority of the Board of Trustees. Each Advisory Agreement provides that the
Investment Manager shall furnish the applicable Funds with an investment
program, office facilities and such investment advisory, research and
administrative services as may be required from time to time. The Investment
Manager compensates all executive and clerical personnel and Trustees of each
Trust if such persons are employees of the Investment Manager or its affiliates.
The Investment Manager is an indirect wholly owned subsidiary of Metropolitan.
Each Advisory Agreement provides that it shall continue in effect with
respect to a Fund for a period of two years after its initial effectiveness and
will continue from year to year thereafter as long as it is approved at least
annually both (i) by a vote of a majority of the outstanding voting securities
of the Fund (as defined in the 1940 Act) or by the Trustees of the Trust, and
(ii) in either event by a vote of a majority of the Trustees who are not parties
to the Advisory Agreement or "interested persons" of any party thereto, cast in
person at a meeting called for the purpose of voting on such approval. The
Advisory Agreement may be terminated on 60 days' written notice by either party
and will terminate automatically in the event of its assignment, as defined
under the 1940 Act and regulations thereunder. Such regulations provide that a
transaction which does not result in a change of actual control or management of
an adviser is not deemed an assignment.
Under the Code of Ethics of the Investment Manager, personnel are only
permitted to engage in personal securities transactions in accordance with
certain conditions relating to such person's position, the identity of the
security, the timing of the transaction, and similar factors. Such personnel
must report their personal securities transactions quarterly and supply broker
confirmations of such transactions to the Investment Manager.
III-31
<PAGE>
Information about rates at which fees are calculated under the Advisory
Agreement with respect to the Funds identified on the cover page of the
Statement of Additional Information, as well as the fees paid to the Investment
Manager in previous years, is included in Section II of this Statement of
Additional Information.
E. Purchase and Redemption of Shares
Shares of each Fund are distributed by State Street Research Investment
Services, Inc., the Distributor. The Fund generally offers four classes of
shares. Class A, Class B(1), Class C and Class S shares are available to all
eligible investors. Each Fund also offers Class B shares, which are available
only to current Class B shareholders through reinvestment of dividends and
capital gains distributions or through exchanges from existing Class B accounts
of the State Street Research Funds. Class A, Class B(1), Class B, Class C and
Class S shares of the Fund may be purchased at the next determined net asset
value per share plus, in the case of all classes except Class S shares, a sales
charge which, at the election of the investor, may be imposed (i) at the time of
purchase (the Class A shares) or (ii) on a deferred basis (the Class B(1), Class
B and Class C shares). General information on how to buy shares of the Fund, as
well as sales charges involved, are set forth under "Your Investment" in the
Prospectus. The following supplements that information.
Public Offering Price. The public offering price for each class of
shares is based on their net asset value determined as of the close of regular
trading on the NYSE on the day the purchase order is received by State Street
Research Service Center (the "Service Center"), provided that the order is
received prior to the close of regular trading on the NYSE on that day;
otherwise the net asset value used is that determined as of the close of the
NYSE on the next day it is open for unrestricted trading. When a purchase order
is placed through a dealer, that dealer is responsible for transmitting the
order promptly to the Service Center in order to permit the investor to obtain
the current price. Any loss suffered by an investor which results from a
dealer's failure to transmit an order promptly is a matter for settlement
between the investor and the dealer.
Alternative Purchase Program. Alternative classes of shares permit
investors to select a purchase program which they believe will be the most
advantageous for them, given the amount of their purchase, the length of time
they anticipate holding Fund shares, or the flexibility they desire in this
regard, and other relevant circumstances. Investors will be able to determine
whether in their particular circumstances it is more advantageous to incur an
initial sales charge and not be subject to certain ongoing charges or to have
their entire purchase price invested in the Fund with the investment being
subject thereafter to ongoing service fees and distribution fees.
As described in greater detail below, financial professionals are paid
differing amounts of compensation depending on which class of shares they sell.
[REST OF PAGE INTENTIONALLY OMITTED]
III-32
<PAGE>
The major differences among the various classes of shares are as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Class A Class B(1) Class B Class C Class S
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales Charges Initial sales charge Contingent Contingent Contingent None
Paid by Investor at time of deferred sales deferred sales deferred sales
to Distributor investment of up to charge of 5% to charge of 5% to charge of 1%
5.75%* depending 1% applies to any 2% applies to any applies to any
on amount of shares redeemed shares redeemed shares redeemed
investment within first six within first five within one year
years following years following following their
their purchase; no their purchase; no purchase
contingent deferred contingent deferred
sales charge after sales charge after
six years five years
- ---------------------------------------------------------------------------------------------------------------------------------
On investments of
$1 million or
more, no initial
sales charge; but
contingent deferred
sales charge of up
to 1% may apply
to any shares
redeemed within
one year following
their purchase
- ---------------------------------------------------------------------------------------------------------------------------------
Initial Commission Paid by Above described 4% 4% 1% None
Distributor to Financial initial sales charge
Professional less 0.25% to
0.75% retained by
distributor
On investments of
$1 million or
more, 0.25% to
1% paid to dealer
by Distributor
- ---------------------------------------------------------------------------------------------------------------------------------
Rule 12b-1 Service Fee
- ---------------------------------------------------------------------------------------------------------------------------------
Paid by Fund to 0.25% each year 0.25% each year 0.25% each year 0.25% each year None
Distributor
- ---------------------------------------------------------------------------------------------------------------------------------
Paid by Distributor to 0.25% each year 0.25% each year 0.25% each year 0.25% each year None
Financial Professional commencing after commencing after commencing after
one year following one year following one year following
purchase purchase purchase
- ---------------------------------------------------------------------------------------------------------------------------------
Rule 12b-1 Distribution
Fee
- ---------------------------------------------------------------------------------------------------------------------------------
Paid by Fund to None 0.75% for first 0.75% for first 0.75% each year None
Distributor eight years; Class eight years; Class
B(1) shares convert B shares convert
automatically to automatically to
Class A shares Class A shares
after eight years after eight years
- ---------------------------------------------------------------------------------------------------------------------------------
Paid by Distributor to None None None 0.75% each year None
Financial Professional commencing after
one year following
purchase
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------------
III-33
<PAGE>
* or up to 4.50% for State Street Research Government Income Fund, State
Street Research High Income Fund, State Street Research Strategic Income
Fund, State Street Research Tax-Exempt Fund and State Street Research New
York Tax Free Fund.
III-34
<PAGE>
Class A Shares--Reduced Sales Charges. The reduced sales charges set
forth under "Your Investment--Choosing a Share Class" in the Prospectus apply to
purchases made at any one time by any "person," which includes: (i) an
individual, or an individual combining with his or her spouse and their children
and purchasing for his, her or their own account; (ii) a "company" as defined in
Section 2(a)(8) of the 1940 Act; (iii) a trustee or other fiduciary purchasing
for a single trust estate or single fiduciary account (including a pension,
profit sharing or other employee benefit trust created pursuant to a plan
qualified under Section 401 of the Internal Revenue Code); (iv) a tax-exempt
organization under Section 501(c)(3) or (13) of the Internal Revenue Code; and
(v) an employee benefit plan of a single employer or of affiliated employers.
Investors may purchase Class A shares of the Fund at reduced sales
charges by executing a Letter of Intent to purchase no less than an aggregate of
$100,000 of the Fund or any combination of Class A shares of "Eligible Funds"
(which include the Fund and other funds as designated by the Distributor from
time to time) within a 13-month period. The sales charge applicable to each
purchase made pursuant to a Letter of Intent will be that which would apply if
the total dollar amount set forth in the Letter of Intent were being bought in a
single transaction. Purchases made within a 90-day period prior to the execution
of a Letter of Intent may be included therein; in such case the date of the
earliest of such purchases marks the commencement of the 13-month period.
An investor may include toward completion of a Letter of Intent the
value (at the current public offering price) of all of his or her Class A shares
of the Fund and of any of the other Class A shares of Eligible Funds held of
record as of the date of his or her Letter of Intent, plus the value (at the
current offering price) as of such date of all of such shares held by any
"person" described herein as eligible to join with the investor in a single
purchase. Class B(1), Class B, Class C and Class S shares may also be included
in the combination under certain circumstances.
A Letter of Intent does not bind the investor to purchase the specified
amount. Shares equivalent to 5% of the specified amount will, however, be taken
from the initial purchase (or, if necessary, subsequent purchases) and held in
escrow in the investor's account as collateral against the higher sales charge
which would apply if the total purchase is not completed within the allotted
time. The escrowed shares will be released when the Letter of Intent is
completed or, if it is not completed, when the balance of the higher sales
charge is, upon notice, remitted by the investor. All dividends and capital
gains distributions with respect to the escrowed shares will be credited to the
investor's account.
Investors may purchase Class A shares of the Fund or a combination of
Eligible Funds at reduced sales charges pursuant to a Right of Accumulation. The
applicable sales charge under the right is determined on the amount arrived at
by combining the dollar amount of the purchase with the value (at the current
public offering price) of all Class A shares of the other Eligible Funds owned
as of the purchase date by the investor plus the value (at the current public
offering price) of all such shares owned as of such date by any "person"
described
III-35
<PAGE>
herein as eligible to join with the investor in a single purchase. Class B(1),
Class B, Class C and Class S shares may also be included in the combination
under certain circumstances. Investors must submit to the Distributor sufficient
information to show that they qualify for this Right of Accumulation.
Other Programs Related to Class A Shares. Class A shares of the Fund may
be sold, or issued in an exchange, at a reduced sales charge or without a sales
charge pursuant to certain sponsored arrangements for designated classes of
investors. These arrangements include programs sponsored by the Distributor or
others under which, for example, a company, employee benefit plan or other
organization makes recommendations to, or permits group solicitation of, its
employees, members or participants to purchase Fund shares. (These arrangements
are not available to any organization created primarily for the purpose of
obtaining shares of the Fund at a reduced sales charge or without a sales
charge.) Sponsored arrangements may be established for non-profit organizations,
holders of individual retirement accounts or participants in limited promotional
campaigns, such as a special offering to shareholders of funds in other
complexes that may be liquidating. Sales without a sales charge, or with a
reduced sales charge, may also be made through brokers, registered investment
advisers, financial planners, institutions, and others, under managed fee-based
programs (e.g., "wrap fee" or similar programs) which meet certain requirements
established by the Distributor. Information on such arrangements and further
conditions and limitations is available from the Distributor.
The entire sales charge on Class A shares may be reallowed to financial
professionals who sell shares during certain special promotional periods which
may be instituted from time to time. The Fund reserves the right to have such
promotions without further supplement to the Prospectus or Statement of
Additional Information. The financial professionals who receive the entire sales
charge may be deemed to be underwriters of the Fund's shares under the
Securities Act of 1933 during such promotions.
In addition, no sales charge is imposed in connection with the sale of
Class A shares of the Fund to the following entities and persons: (A) the
Investment Manager, Distributor or any affiliated entities, including any direct
or indirect parent companies and other subsidiaries of such parents
(collectively "Affiliated Companies"); (B) employees, officers, sales
representatives or current or retired directors or trustees of the Affiliated
Companies or any investment company managed by any of the Affiliated Companies,
any relatives of any such individuals whose relationship is directly verified by
such individuals to the Distributor, or any beneficial account for such
relatives or individuals; (C) employees, officers, sales representatives or
directors of dealers and other entities with a selling agreement with the
Distributor to sell shares of any aforementioned investment company, any spouse
or child of such person, or any beneficial account for any of them; and (D)
others who because of their business relationship with the Fund, the Distributor
or its affiliates, and because of their knowledge of the Fund, do not require
any significant sales effort or expense to educate them about the Fund. The
purchase must be made for investment and the shares purchased may not be resold
except through redemption. This purchase program is subject to such
administrative
III-36
<PAGE>
policies, regarding the qualification of purchasers and any other matters, as
may be adopted by the Distributor from time to time.
Conversion of Class B(1) and Class B Shares to Class A Shares. A
shareholder's Class B(1) and Class B shares of the Fund, including all shares
received as dividends or distributions with respect to such shares, will
automatically convert to Class A shares of the Fund at the end of eight years
following the issuance of such Class B shares; consequently, they will no longer
be subject to the higher expenses borne by Class B(1) and Class B shares. The
conversion rate will be determined on the basis of the relative per share net
asset values of the two classes and may result in a shareholder receiving either
a greater or fewer number of Class A shares than the Class B shares so
converted. As noted above, holding periods for Class B(1) shares received in
exchange for Class B(1) shares of other Eligible Funds and for Class B shares
received in exchange for Class B shares of other Eligible Funds, will be counted
toward the eight-year period.
Contingent Deferred Sales Charges. The amount of any contingent deferred
sales charge paid on Class A shares (on sales of $1 million or more and which do
not involve an initial sales charge) or on Class B(1), Class B or Class C shares
of the Fund will be paid to the Distributor. The Distributor will pay dealers at
the time of sale a 4% commission for selling Class B(1) and Class B shares and a
1% commission for selling Class C shares. In certain cases, a dealer may elect
to waive the 4% commission on Class B(1) and Class B shares and receive in lieu
thereof an annual fee, usually 1%, with respect to such outstanding shares. The
proceeds of the contingent deferred sales charges and the distribution fees are
used to offset distribution expenses and thereby permit the sale of Class B(1),
Class B and Class C shares without an initial sales charge.
In determining the applicability and rate of any contingent deferred
sales charge of Class B(1), Class B or Class C shares, it will be assumed that a
redemption of the shares is made first of those shares having the greatest
capital appreciation, next of shares representing reinvestment of dividends and
capital gains distributions and finally of remaining shares held by shareholder
for the longest period of time. Class B(1) shares that are redeemed within a
six-year period after purchase, Class B shares that are redeemed within a
five-year period after their purchase, and Class C shares that are redeemed
within a one-year period after their purchase, will not be subject to a
contingent deferred sales charge to the extent that the value of such shares
represents (1) capital appreciation of Fund assets or (2) reinvestment of
dividends or capital gains distributions. The holding period for purposes of
applying a contingent deferred sales charge for a particular class of shares of
the Fund acquired through an exchange from another Eligible Fund will be
measured from the date that such shares were initially acquired in the other
Eligible Fund, and shares of the same class being redeemed will be considered to
represent, as applicable, capital appreciation or dividend and capital gains
distribution reinvestments in such other Eligible Fund. These determinations
will result in any contingent deferred sales charge being imposed at the lowest
possible rate. For federal income tax purposes, the amount of the contingent
deferred sales charge will reduce the gain or increase the loss, as the case may
be, on the amount realized on redemption.
III-37
<PAGE>
Contingent Deferred Sales Charge Waivers. With respect to Class A shares
(on sales of $1 million or more and which do not involve an initial sales
charge), and Class B(1), Class B and Class C shares of the Fund, the contingent
deferred sales charge does not apply to exchanges or to redemptions under a
systematic withdrawal plan which meets certain conditions. The contingent
deferred sales charge will be waived for participant initiated distributions
from State Street Research prototype employee retirement plans. In addition, the
contingent deferred sales charge will be waived for: (i) redemptions made within
one year of the death or total disability, as defined by the Social Security
Administration, of all shareholders of an account; (ii) redemptions made after
attainment of a specific age in an amount which represents the minimum
distribution required at such age under Section 401(a)(9) of the Internal
Revenue Code of 1986, as amended, for retirement accounts or plans (e.g., age 70
1/2 for Individual Retirement Accounts and Section 403(b) plans), calculated
solely on the basis of assets invested in the Fund or other Eligible Funds; and
(iii) a redemption resulting from a tax-free return of an excess contribution to
an Individual Retirement Account. (The foregoing waivers do not apply to a
tax-free rollover or transfer of assets out of the Fund). The contingent
deferred sales charge may also be waived on Class A shares under certain
exchange arrangements for selected brokers with substantial asset allocation
programs. The Fund may modify or terminate the waivers at any time; for example,
the Fund may limit the application of multiple waivers and establish other
conditions for employee benefit plans. Certain employee benefit plans sponsored
by a financial professional may be subject to other conditions for waivers under
which the plans may initially invest in Class B(1) or Class B shares and then
Class A shares of certain funds upon meeting specific criteria.
Class S Shares. Class S shares are currently available to certain
employee benefit plans such as qualified retirement plans which meet criteria
relating to number of participants, service arrangements, or similar factors;
insurance companies; investment companies; advisory accounts of the Investment
Manager; endowment funds of nonprofit organizations with substantial minimum
assets (currently a minimum of $10 million); and other similar institutional
investors. Class S shares may be acquired through programs or products sponsored
by Metropolitan, its affiliates, or both for which Class S shares have been
designated. In addition, Class S shares are available through programs under
which, for example, investors pay an asset-based fee and/or a transaction fee to
intermediaries. Class S share availability is determined by the Distributor and
intermediaries based on the overall direct and indirect costs of a particular
program, expected assets, account sizes and similar considerations.
Reorganizations. In the event of mergers or reorganizations with other
public or private collective investment entities, including investment companies
as defined in the 1940 Act, the Fund may issue its shares at net asset value (or
more) to such entities or to their security holders.
Redemptions. The Fund reserves the right to pay redemptions in kind with
portfolio securities in lieu of cash. In accordance with its election pursuant
to Rule 18f-1 under the 1940 Act, the Fund may limit the amount of redemption
proceeds paid in cash. Although it
III-38
<PAGE>
has no present intention to do so, the Fund may, under unusual circumstances,
limit redemptions in cash with respect to each shareholder during any ninety-day
period to the lesser of (i) $250,000 or (ii) 1% of the net asset value of the
Fund at the beginning of such period. In connection with any redemptions paid in
kind with portfolio securities, brokerage and other costs may be incurred by the
redeeming shareholder in the sale of the securities received.
Systematic Withdrawal Plan. A shareholder who owns noncertificated Class
A or Class S shares with a value of $5,000 or more, or Class B(1), Class B or
Class C shares with a value of $10,000 or more, may elect, by participating in
the Fund's Systematic Withdrawal Plan, to have periodic checks issued for
specified amounts. These amounts may not be less than certain minimums,
depending on the class of shares held. The Plan provides that all income
dividends and capital gains distributions of the Fund shall be credited to
participating shareholders in additional shares of the Fund. Thus, the
withdrawal amounts paid can only be realized by redeeming shares of the Fund
under the Plan. To the extent such amounts paid exceed dividends and
distributions from the Fund, a shareholder's investment will decrease and may
eventually be exhausted.
In the case of shares otherwise subject to contingent deferred sales
charges, no such charges will be imposed on withdrawals of up to 12% annually
(minimum $50 per withdrawal) of either (a) the value, at the time the Systematic
Withdrawal Plan is initiated, of the shares then in the account or (b) the
value, at the time of a withdrawal, of the same number of shares as in the
account when the Systematic Withdrawal Plan was initiated, whichever is higher.
Expenses of the Systematic Withdrawal Plan are borne by the Fund. A
participating shareholder may withdraw from the Systematic Withdrawal Plan, and
the Fund may terminate the Systematic Withdrawal Plan at any time on written
notice. Purchase of additional shares while a shareholder is receiving payments
under a Systematic Withdrawal Plan is ordinarily disadvantageous because of
duplicative sales charges. For this reason, a shareholder may not participate in
the Investamatic Program (see "Your Investment--Investor Services--Investamatic
Program" in the Fund's Prospectus) and the Systematic Withdrawal Plan at the
same time.
Request to Dealer to Repurchase. For the convenience of shareholders,
the Fund has authorized the Distributor as its agent to accept orders from
dealers by wire or telephone for the repurchase of shares by the Distributor
from the dealer. The Fund may revoke or suspend this authorization at any time.
The repurchase price is the net asset value for the applicable shares next
determined following the time at which the shares are offered for repurchase by
the dealer to the Distributor. The dealer is responsible for promptly
transmitting a shareholder's order to the Distributor.
Signature Guarantees. Signature guarantees are required for, among other
things: (1) written requests for redemptions for more than $100,000; (2) written
requests for redemptions for any amount if the proceeds are transmitted to other
than the current address of record (unchanged in the past 30 days); (3) written
requests for redemptions for any amount submitted
III-39
<PAGE>
by corporations and certain fiduciaries and other intermediaries; and (4)
requests to transfer the registration of shares to another owner. Signatures
must be guaranteed by a bank, a member firm of a national stock exchange, or
other eligible guarantor institution. The Transfer Agent will not accept
guarantees (or notarizations) from notaries public. The above requirements may
be waived in certain instances.
Dishonored Checks. If a purchaser's check is not honored for its full
amount, the purchaser could be subject to additional charges to cover collection
costs and any investment loss, and the purchase may be canceled.
Processing Charges. Purchases and redemptions processed through
securities dealers may be subject to processing charges imposed by the
securities dealer in addition to sales charges that may be imposed by the Fund
or the Distributor.
F. Shareholder Accounts
General information on shareholder accounts is included in the Fund's
Prospectus under "Your Investment." The following supplements that information.
Maintenance Fees and Involuntary Redemption. Because of the relatively
high cost of maintaining small shareholder accounts, the Fund reserves the right
to redeem at its option any shareholder account which remains below $1,500 for a
period of 60 days after notice is mailed to the applicable shareholder, or to
impose a maintenance fee on such account after 60 days' notice. Such
involuntarily redemptions will be subject to applicable sales charges, if any.
The Fund may increase such minimum account value above such amount in the future
after notice to affected shareholders. Involuntarily redeemed shares will be
priced at the net asset value on the date fixed for redemption by the Fund, and
the proceeds of the redemption will be mailed to the affected shareholder at the
address of record. Currently, the maintenance fee is $18 annually, which is paid
to the Transfer Agent. The fee does not apply to certain retirement accounts or
if the shareholder has more than an aggregate $50,000 invested in the Fund and
other Eligible Funds combined. Imposition of a maintenance fee on a small
account could, over time, exhaust the assets of such account.
To cover the cost of additional compliance administration, a $20 fee
will be charged against any shareholder account that has been determined to be
subject to escheat under applicable state laws.
The Fund may not suspend the right of redemption or postpone the date of
payment of redemption proceeds for more than seven days, except that (a) it may
elect to suspend the redemption of shares or postpone the date of payment of
redemption proceeds: (1) during any period that the NYSE is closed (other than
customary weekend and holiday closings) or trading on the NYSE is restricted;
(2) during any period in which an emergency exists as a result of which disposal
of portfolio securities is not reasonably practicable or it is not reasonably
practicable to fairly determine the Fund's net asset values; or (3) during such
other periods as
III-40
<PAGE>
the Securities and Exchange Commission (the "SEC") may by order permit for the
protection of investors; and (b) the payment of redemption proceeds may be
postponed as otherwise provided under "Purchase and Redemption of Shares" in
this Statement of Additional Information.
The Open Account System. Under the Open Account System full and
fractional shares of the Fund owned by shareholders are credited to their
accounts by the Transfer Agent, State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110. Certificates representing Class
B(1), Class B or Class C shares will not be issued, while certificates
representing Class A or Class S shares will only be issued if specifically
requested in writing and, in any case, will only be issued for full shares, with
any fractional shares to be carried on the shareholder's account. Shareholders
will receive periodic statements of transactions in their accounts.
The Fund's Open Account System provides the following options:
1. Additional purchases of shares of the Fund may be made through
dealers, by wire or by mailing a check payable to "State Street
Research Funds" under the terms set forth above under "Purchase
and Redemption of Shares" in this Statement of Additional
Information.
2. The following methods of receiving dividends from investment
income and distributions from capital gains generally are
available:
(a) All income dividends and capital gains distributions
reinvested in additional shares of the Fund.
(b) All income dividends and capital gains distributions in
cash.
(c) All income dividends and capital gains distributions
invested in any one available Eligible Fund designated by
the shareholder as described below. See "--Dividend
Allocation Plan" herein.
Dividend and distribution selections should be made on the Application
accompanying the initial investment. If no selection is indicated on the
Application, that account will be automatically coded for reinvestment of all
dividends and distributions in additional shares of the same class of the Fund.
Selections may be changed at any time by telephone or written notice to the
Service Center. Dividends and distributions are reinvested at net asset value
without a sales charge.
Exchange Privileges. Shareholders of the Fund may exchange their shares
for available shares with corresponding characteristics of any of the other
Eligible Funds on the basis of the relative net asset values of the respective
shares to be exchanged, and subject to compliance with applicable securities
laws. Shareholders of any other Eligible Fund may
III-41
<PAGE>
similarly exchange their shares for Fund shares with corresponding
characteristics. Prior to making an exchange, shareholders should obtain the
Prospectus of the Eligible Fund into which they are exchanging. Under the Direct
Program, subject to certain conditions, shareholders may make arrangements for
regular exchanges from the Fund into other Eligible Funds. To effect an
exchange, Class A, Class B(1), Class B and Class C shares may be redeemed
without the payment of any contingent deferred sales charge that might otherwise
be due upon an ordinary redemption of such shares. The State Street Research
Money Market Fund issues Class E shares which are sold without any sales charge.
Exchanges of State Street Research Money Market Fund Class E shares into Class A
shares of the Fund or any other Eligible Fund are subject to the initial sales
charge or contingent deferred sales charge applicable to an initial investment
in such Class A shares, unless a prior Class A sales charge has been paid
directly or indirectly with respect to the shares redeemed. Class A shares
acquired through a new investment after January 1, 1999, are subject to an
incremental sales charge if exchanged within 30 days of acquisition for Class A
shares of a Fund with a higher applicable sales charge. For purposes of
computing the contingent deferred sales charge that may be payable upon
disposition of any acquired Class A, Class B(1), Class B and Class C shares, the
holding period of the redeemed shares is "tacked" to the holding period of any
acquired shares. No exchange transaction fee is currently imposed on any
exchange.
Shares of the Fund may also be acquired or redeemed in exchange for
shares of the Summit Cash Reserves Fund ("Summit Cash Reserves") by customers of
Merrill Lynch, Pierce, Fenner & Smith Incorporated (subject to completion of
steps necessary to implement the program). The Fund and Summit Cash Reserves are
related mutual funds for purposes of investment and investor services. Upon the
acquisition of shares of Summit Cash Reserves by exchange for redeemed shares of
the Fund, (a) no sales charge is imposed by Summit Cash Reserves, (b) no
contingent deferred sales charge is imposed by the Fund on the Fund shares
redeemed, and (c) any applicable holding period of the Fund shares redeemed is
"tolled," that is, the holding period clock stops running pending further
transactions. Upon the acquisition of shares of the Fund by exchange for
redeemed shares of Summit Cash Reserves, (a) the acquisition of Class A shares
shall be subject to the initial sales charges or contingent deferred sales
charges applicable to an initial investment in such Class A shares, unless a
prior Class A sales charge has been paid indirectly, and (b) the acquisition of
Class B(1), Class B or Class C shares of the Fund shall restart any holding
period previously tolled, or shall be subject to the contingent deferred sales
charge applicable to an initial investment in such shares.
The exchange privilege may be terminated or suspended or its terms
changed at any time, subject, if required under applicable regulations, to 60
days' prior notice. New accounts established for investments upon exchange from
an existing account in another fund will have the same telephone privileges with
respect to the Fund (see "Your Investment--Account Policies--Telephone Requests"
in the Fund's Prospectus and "--Telephone Privileges," below) as the existing
account unless the Service Center is instructed otherwise. Related
administrative policies and procedures may also be adopted with regard to a
series of exchanges, street name accounts, sponsored arrangements and other
matters.
III-42
<PAGE>
The exchange privilege is not designed for use in connection with
short-term trading or market timing strategies. To protect the interests of
shareholders, the Fund reserves the right to temporarily or permanently
terminate the exchange privilege for any person who makes more than six
exchanges out of or into the Fund per calendar year. Accounts under common
ownership or control, including accounts with the same taxpayer identification
number, may be aggregated for purposes of the six exchange limit.
Notwithstanding the six exchange limit, the Fund reserves the right to refuse
exchanges by any person or group if, in the Investment Manager's judgment, the
Fund would be unable to invest effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely affected.
Exchanges may be restricted or refused if the Fund receives or anticipates
simultaneous orders affecting significant portions of the Fund's assets. In
particular, a pattern of exchanges that coincides with a "market timing"
strategy may be disruptive to the Fund. The Fund may impose these restrictions
at any time. The exchange limit may be modified for accounts in certain
institutional retirement plans because of plan exchange limits, Department of
Labor regulations or administrative and other considerations. The exchange limit
may also be modified under certain exchange arrangements for selected brokers
with substantial asset allocation programs. Subject to the foregoing, if an
exchange request in good order is received by the Service Center and delivered
by the Service Center to the Transfer Agent by 12 noon Boston time on any
business day, the exchange usually will occur that day. For further information
regarding the exchange privilege, shareholders should contact the Service
Center.
Reinvestment Privilege. A shareholder of the Fund who has redeemed
shares or had shares repurchased at his or her request may reinvest all or any
portion of the proceeds (plus that amount necessary to acquire a fractional
share to round off his or her reinvestment to full shares) in shares, of the
same class as the shares redeemed, of the Fund or any other Eligible Fund at net
asset value and without subjecting the reinvestment to an initial sales charge,
provided such reinvestment is made within 120 calendar days after a redemption
or repurchase. Upon such reinvestment, the shareholder will be credited with any
contingent deferred sales charge previously charged with respect to the amount
reinvested. The redemption of shares is, for federal income tax purposes, a sale
on which the shareholder may realize a gain or loss. If a redemption at a loss
is followed by a reinvestment within 30 days, the transaction may be a "wash
sale" resulting in a denial of the loss for federal income tax purposes.
Any reinvestment pursuant to the reinvestment privilege will be subject
to any applicable minimum account standards imposed by the fund into which the
reinvestment is made. Shares are sold to a reinvesting shareholder at the net
asset value thereof next determined following timely receipt by the Service
Center of such shareholder's written purchase request and delivery of the
request by the Service Center to the Transfer Agent. A shareholder may exercise
this reinvestment privilege only once per 12-month period with respect to his or
her shares of the Fund.
Dividend Allocation Plan. The Dividend Allocation Plan allows
shareholders to elect to have all their dividends and any other distributions
from the Fund or any Eligible Fund
III-43
<PAGE>
automatically invested at net asset value in one other such Eligible Fund
designated by the shareholder, provided the account into which the dividends and
distributions are directed is initially funded with the requisite minimum
amount.
Telephone Privileges. The following telephone privileges are
available:
o Telephone Exchange Privilege for Shareholder and Shareholder's
Financial Professional
o Shareholders automatically receive this privilege unless
declined.
o This privilege allows a shareholder or a shareholder's
financial professional to request exchanges into other
State Street Research funds.
o Telephone Redemption Privilege for Shareholder
o Shareholders automatically receive this privilege unless
declined.
o This privilege allows a shareholder to phone requests to
sell shares, with the proceeds sent to the address of
record.
o Telephone Redemption Privilege for Shareholder's Financial
Professional (This privilege is not automatic; a shareholder must
specifically elect it)
o This privilege allows a shareholder's financial
professional to phone requests to sell shares, with the
proceeds sent to the address of record on the account.
A shareholder with the above telephone privileges is deemed to authorize
the Service Center and the Transfer Agent to: (1) act upon the telephone
instructions of any person purporting to be any of the shareholders of an
account or a shareholder's financial professional; and (2) honor any written
instructions for a change of address regardless of whether such request is
accompanied by a signature guarantee. All telephone calls will be recorded.
Neither the Fund, the other Eligible Funds, the Transfer Agent, the Investment
Manager nor the Distributor will be liable for any loss, expense or cost arising
out of any request, including any fraudulent or unauthorized requests.
Shareholders assume the risk to the full extent of their accounts that telephone
requests may be unauthorized. Reasonable procedures will be followed to confirm
that instructions communicated by telephone are genuine. The shareholder will
not be liable for any losses arising from unauthorized or fraudulent
instructions if such procedures are not followed.
Alternative Means of Contacting a Fund. It is unlikely, during periods
of extraordinary market conditions, that a shareholder may have difficulty in
reaching the Service Center. In that event, however, the shareholder should
contact the Service Center at 1-800-562-0032, 1-617-357-7800 or otherwise at its
main office at One Financial Center, Boston, Massachusetts 02111-2690.
III-44
<PAGE>
G. Net Asset Value
The net asset value of the shares of each Fund is determined once daily
as of the close of regular trading on the NYSE, but no later than 4 P.M. New
York City time, Monday through Friday, on each day during which the NYSE is open
for unrestricted trading. The NYSE is currently closed on New Year's Day, Martin
Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share of each Fund is computed by dividing the
sum of the value of the securities held by the Fund plus any cash or other
assets minus all liabilities by the total number of outstanding shares of the
Fund at such time. Any expenses, except for extraordinary or nonrecurring
expenses, borne by the Fund, including the investment management fee payable to
the Investment Manager, are accrued daily.
In determining the values of portfolio assets as provided below, the
Trustees utilize one or more pricing services in lieu of market quotations for
certain securities which are not readily available on a daily basis. Such
services utilize information with respect to market transactions, quotations
from dealers and various relationships among securities in determining value and
may provide prices determined as of times prior to the close of the NYSE.
In general, securities are valued as follows. Securities which are
listed or traded on the New York or American Stock Exchange are valued at the
price of the last quoted sale on the respective exchange for that day.
Securities which are listed or traded on a national securities exchange or
exchanges, but not on the New York or American Stock Exchange, are valued at the
price of the last quoted sale on the exchange for that day prior to the close of
the NYSE. Securities not listed on any national securities exchange which are
traded "over the counter" and for which quotations are available on the National
Association of Securities Dealers, Inc.'s (the "NASD") NASDAQ System are valued
at the closing price supplied through such system for that day at the close of
the NYSE. Other securities are, in general, valued at the mean of the bid and
asked quotations last quoted prior to the close of the NYSE if there are market
quotations readily available, or in the absence of such market quotations, then
at the fair value thereof as determined by or under authority of the Trustees of
the Trust with the use of such pricing services as may be deemed appropriate or
methodologies authorized by the Trustees. The Trustees also reserve the right to
adopt other valuations based on fair value in pricing in unusual circumstances
where use of other methods as discussed in part above, could otherwise have a
material adverse effect on the Fund as a whole.
The Trustees have authorized the use of the amortized cost method to
value short-term debt instruments issued with a maturity of one year or less and
having a remaining maturity of 60 days or less when the value obtained is fair
value, provided that during any period in which more than 25% of the Fund's
total assets is invested in short-term debt securities the current market value
of such securities will be used in calculating net asset value per share in lieu
of the amortized cost method. Under the amortized cost method of valuation, the
security is
III-45
<PAGE>
initially valued at cost on the date of purchase (or in the case of short-term
debt instruments purchased with more than 60 days remaining to maturity, the
market value on the 61st day prior to maturity), and thereafter a constant
amortization to maturity of any discount or premium is assumed regardless of the
impact of fluctuating interest rates on the market value of the security.
H. Portfolio Transactions
The Fund's portfolio turnover rate is determined by dividing the lesser
of securities purchases or sales for a year by the monthly average value of
securities held by the Fund (excluding, for purposes of this determination,
securities the maturities of which as of the time of their acquisition were one
year or less).
Brokerage Allocation
- --------------------
The Investment Manager's policy is to seek for its clients, including
the Fund, what in the Investment Manager's judgment will be the best overall
execution of purchase or sale orders and the most favorable net prices in
securities transactions consistent with its judgment as to the business
qualifications of the various broker or dealer firms with whom the Investment
Manager may do business, and the Investment Manager may not necessarily choose
the broker offering the lowest available commission rate. Decisions with respect
to the market where the transaction is to be completed, to the form of
transaction (whether principal or agency), and to the allocation of orders among
brokers or dealers are made in accordance with this policy. In selecting brokers
or dealers to effect portfolio transactions, consideration is given to their
proven integrity and financial responsibility, their demonstrated execution
experience and capabilities both generally and with respect to particular
markets or securities, the competitiveness of their commission rates in agency
transactions (and their net prices in principal transactions), their willingness
to commit capital, and their clearance and settlement capability. The Investment
Manager makes every effort to keep informed of commission rate structures and
prevalent bid/ask spread characteristics of the markets and securities in which
transactions for the Fund occur. Against this background, the Investment Manager
evaluates the reasonableness of a commission or a net price with respect to a
particular transaction by considering such factors as difficulty of execution or
security positioning by the executing firm. The Investment Manager may or may
not solicit competitive bids based on its judgment of the expected benefit or
harm to the execution process for that transaction.
When it appears that a number of firms could satisfy the required
standards in respect of a particular transaction, consideration may also be
given by the Investment Manager to services other than execution services which
certain of such firms have provided in the past or may provide in the future.
Negotiated commission rates and prices, however, are based upon the Investment
Manager's judgment of the rate which reflects the execution requirements of the
transaction without regard to whether the broker provides services in addition
to execution. Among such other services are the supplying of supplemental
investment research; general economic, political and business information;
analytical and statistical data; relevant market
III-46
<PAGE>
information, quotation equipment and services; reports and information about
specific companies, industries and securities; purchase and sale recommendations
for stocks and bonds; portfolio strategy services; historical statistical
information; market data services providing information on specific issues and
prices; financial publications; proxy voting data and analysis services;
technical analysis of various aspects of the securities markets, including
technical charts; computer hardware used for brokerage and research purposes;
computer software and databases (including those contained in certain trading
systems and used for portfolio analysis and modeling and also including software
providing investment personnel with efficient access to current and historical
data from a variety of internal and external sources) and portfolio evaluation
services and relative performance of accounts.
In the case of the Fund and other registered investment companies
advised by the Investment Manager or its affiliates, the above services may
include data relating to performance, expenses and fees of those investment
companies and other investment companies. This information is used by the
Trustees or Directors of the investment companies to fulfill their
responsibility to oversee the quality of the Investment Manager's advisory
contracts between the investment companies and the Investment Manager. The
Investment Manager considers these investment company services only in
connection with the execution of transactions on behalf of its investment
company clients and not its other clients. Certain of the nonexecution services
provided by broker-dealers may in turn be obtained by the broker-dealers from
third parties who are paid for such services by the broker-dealers.
The Investment Manager regularly reviews and evaluates the services
furnished by broker-dealers. The Investment Manager's investment management
personnel seek to evaluate the quality of the research and other services
provided by various broker-dealer firms, and the results of these efforts are
made available to the equity trading department, which uses this information as
consideration to the extent described above in the selection of brokers to
execute portfolio transactions.
Some services furnished by broker-dealers may be used for research and
investment decision-making purposes, and also for marketing or administrative
purposes. Under these circumstances, the Investment Manager allocates the cost
of the services to determine the proportion which is allocable to research or
investment decision-making and the proportion allocable to other purposes. The
Investment Manager pays directly from its own funds for that portion allocable
to uses other than research or investment decision-making. Some research and
execution services may benefit the Investment Manager's clients as a whole,
while others may benefit a specific segment of clients. Not all such services
will necessarily be used exclusively in connection with the accounts which pay
the commissions to the broker-dealer providing the services.
The Investment Manager has no fixed agreements or understandings with
any broker-dealer as to the amount of brokerage business which the firm may
expect to receive for services supplied to the Investment Manager or otherwise.
There may be, however, understandings with certain firms that in order for such
firms to be able to continuously supply
III-47
<PAGE>
certain services, they need to receive an allocation of a specified amount of
brokerage business. These understandings are honored to the extent possible in
accordance with the policies set forth above.
It is not the Investment Manager's policy to intentionally pay a firm a
brokerage commission higher than that which another firm would charge for
handling the same transaction in recognition of services (other than execution
services) provided. However, the Investment Manager is aware that this is an
area where differences of opinion as to fact and circumstances may exist, and in
such circumstances, if any, the Investment Manager relies on the provisions of
Section 28(e) of the Securities Exchange Act of 1934.
In the case of the purchase of fixed income securities in underwriting
transactions, the Investment Manager follows any instructions received from its
clients as to the allocation of new issue discounts, selling commissions and
designations to brokers or dealers which provide the client with research,
performance evaluation, master trustee and other services. In the absence of
instructions from the client, the Investment Manager may make such allocations
to broker-dealers which have provided the Investment Manager with research and
brokerage services.
In some instances, certain clients of the Investment Manager request it
to place all or part of the orders for their account with certain brokers or
dealers, which in some cases provide services to those clients. The Investment
Manager generally agrees to honor these requests to the extent practicable.
Clients may request that the Investment Manager only effect transactions with
the specified broker-dealers if the broker-dealers are competitive as to price
and execution. Where the request is not so conditioned, the Investment Manager
may be unable to negotiate commissions or obtain volume discounts or best
execution. In cases where the Investment Manager is requested to use a
particular broker-dealer, different commissions may be charged to clients making
the requests. A client who requests the use of a particular broker-dealer should
understand that it may lose the possible advantage which non-requesting clients
derive from aggregation of orders for several clients as a single transaction
for the purchase or sale of a particular security. Among other reasons why best
execution may not be achieved with directed brokerage is that, in an effort to
achieve orderly execution of transactions, execution of orders that have
designated particular brokers may, at the discretion of the trading desk, be
delayed until execution of other non-designated orders has been completed.
When more than one client of the Investment Manager is seeking to buy or
sell the same security, the sale or purchase is carried out in a manner which is
considered fair and equitable to all accounts. In allocating investments among
various clients (including in what sequence orders for trades are placed), the
Investment Manager will use its best business judgment and will take into
account such factors as the investment objectives of the clients, the amount of
investment funds available to each, the size of the order, the amount already
committed for each client to a specific investment and the relative risks of the
investments, all in order to provide on balance a fair and equitable result to
each client over time. Although
III-48
<PAGE>
sharing in large transactions may sometimes affect price or volume of shares
acquired or sold, overall it is believed there may be an advantage in execution.
The Investment Manager may follow the practice of grouping orders of various
clients for execution to get the benefit of lower prices or commission rates. In
certain cases where the aggregate order may be executed in a series of
transactions at various prices, the transactions are allocated as to amount and
price in a manner considered equitable to each so that each receives, to the
extent practicable, the average price of such transactions. Exceptions may be
made based on such factors as the size of the account and the size of the trade.
For example, the Investment Manager may not aggregate trades where it believes
that it is in the best interests of clients not to do so, including situations
where aggregation might result in a large number of small transactions with
consequent increased custodial and other transactional costs which may
disproportionately impact smaller accounts. Such disaggregation, depending on
the circumstances, may or may not result in such accounts receiving more or less
favorable execution relative to other clients.
Information about portfolio turnover rates and certain brokerage
commissions paid by the Funds identified on the cover page of this Statement of
Additional Information is included in Section II of this Statement of Additional
Information.
I. Certain Tax Matters
Federal Income Taxation of the Fund--In General
- -----------------------------------------------
Each Fund intends to qualify and elects to be treated each taxable year
as a "regulated investment company" under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), although it cannot give complete
assurance that it will qualify to do so. Accordingly, the Fund must, among other
things, (a) derive at least 90% of its gross income in each taxable year from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income (including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "90% test"); and (b) satisfy certain
diversification requirements on a quarterly basis.
If in any year the Fund derives more than 10% of its gross income (as
defined in the Code, which disregards losses for that purpose) from investments
made directly in commodities, including precious metal investments, or
commodity-related options, futures or indices, the Fund in such year may fail to
qualify as a regulated investment company under the Code. The Investment Manager
intends to manage the Fund's portfolio so as to minimize the risk of such a
disqualification.
If the Fund should fail to qualify as a regulated investment company in
any year, it would lose the beneficial tax treatment accorded regulated
investment companies under Subchapter M of the Code and all of its taxable
income would be subject to tax at regular corporate rates without any deduction
for distributions to shareholders, and such distributions will be taxable to
shareholders as ordinary income to the extent of the Fund's current or
III-49
<PAGE>
accumulated earnings and profits. Also, the shareholders, if they received a
distribution in excess of current or accumulated earnings and profits, would
receive a return of capital that would reduce the basis of their shares of the
Fund to the extent thereof. Any distribution in excess of a shareholder's basis
in the shareholder's shares would be taxable as gain realized from the sale of
such shares.
The Fund will be liable for a nondeductible 4% excise tax on amounts not
distributed on a timely basis in accordance with a calendar year distribution
requirement. To avoid the tax, during each calendar year the Fund must
distribute an amount equal to at least 98% of the sum of its ordinary income
(not taking into account any capital gains or losses) for the calendar year, and
its capital gain net income for the 12-month period ending on October 31, in
addition to any undistributed portion of the respective balances from the prior
year. For that purpose, any income or gain retained by the Fund that is subject
to corporate tax will be considered to have been distributed by year-end. The
Fund intends to make sufficient distributions to avoid this 4% excise tax.
Taxation of the Fund's Investments
- ----------------------------------
Original Issue Discount; Market Discount. For federal income tax
purposes, debt securities purchased by the Fund may be treated as having
original issue discount. Original issue discount represents interest for federal
income tax purposes and can generally be defined as the excess of the stated
redemption price at maturity of a debt obligation over the issue price. Original
issue discount is treated for federal income tax purposes as income earned by
the Fund, whether or not any income is actually received, and therefore is
subject to the distribution requirements of the Code. Generally, the amount of
original issue discount is determined on the basis of a constant yield to
maturity which takes into account the compounding of accrued interest. Under
section 1286 of the Code, an investment in a stripped bond or stripped coupon
may result in original issue discount.
Debt securities may be purchased by the Fund at a discount that exceeds
the original issue discount plus previously accrued original issue discount
remaining on the securities, if any, at the time the Fund purchases the
securities. This additional discount represents market discount for federal
income tax purposes. In the case of any debt security issued after July 18,
1984, having a fixed maturity date of more than one year from the date of issue
and having market discount, the gain realized on disposition will be treated as
interest to the extent it does not exceed the accrued market discount on the
security (unless the Fund elects to include such accrued market discount in
income in the tax year to which it is attributable). Generally, market discount
is accrued on a daily basis. The Fund may be required to capitalize, rather than
deduct currently, part or all of any direct interest expense incurred or
continued to purchase or carry any debt security having market discount, unless
the Fund makes the election to include market discount currently. Because the
Fund must include original issue discount in income, it will be more difficult
for the Fund to make the distributions required for the Fund to maintain its
status as a regulated investment company under Subchapter M of the Code or to
avoid the 4% excise tax described above.
III-50
<PAGE>
Options and Futures Transactions. Certain of the Fund's investments may
be subject to provisions of the Code that (i) require inclusion of unrealized
gains or losses in the Fund's income for purposes of the 90% test, and require
inclusion of unrealized gains in the Fund's income for the purposes of the
excise tax and the distribution requirements applicable to regulated investment
companies; (ii) defer recognition of realized losses; and (iii) characterize
both realized and unrealized gain or loss as short-term and long-term gain,
irrespective of the holding period of the investment. Such provisions generally
apply to, among other investments, options on debt securities, indices on
securities and futures contracts. The Fund will monitor its transactions and may
make certain tax elections available to it in order to mitigate the impact of
these rules and prevent disqualification of the Fund as a regulated investment
company.
Gains or losses attributable to foreign currency contracts or
fluctuations in exchange rates that occur between the time the Fund accrues
income or expenses denominated in a foreign currency and the time the Fund
actually collects such income or pays such expenses are treated as ordinary
income or loss. The portion of any gain or loss on the disposition of a debt
security denominated in a foreign currency that is attributable to fluctuations
in the value of the foreign currency during the holding period of the debt
security will likewise be treated as ordinary income or loss. Such ordinary
income or loss will increase or decrease the amount of the Fund's net investment
income.
If the Fund invests in the stock of certain "passive foreign investment
companies" ("PFICs"), the income of such companies may become taxable to the
Fund prior to its distribution to the Fund or, alternatively, ordinary income
taxes and interest charges may be imposed on the Fund on "excess distributions"
received by the Fund or on gain from the disposition of such investments by the
Fund. Alternatively, if the stock of a PFIC is marketable, the Fund may elect to
mark the stock of the PFIC to market annually, and to recognize gain or loss of
the appreciation or depreciation in the stock. Any gain so recognized would be
treated as ordinary income, and a loss would be recognized and treated as an
ordinary deduction to the extent of any prior, unreversed amounts of gain
recognized with respect to that stock. The Fund does not intend to invest in
PFICs. Because of the broad scope of the PFIC rules, however, there can be no
assurance that the Fund can avoid doing so.
Federal Income Taxation of Shareholders
- ---------------------------------------
Dividends paid by the Fund may be eligible for the 70%
dividends-received deduction for corporations. The percentage of the Fund's
dividends eligible for such tax treatment may be less than 100% to the extent
that less than 100% of the Fund's gross income may be from qualifying dividends
of domestic corporations. Any dividend declared in October, November or December
and made payable to shareholders of record in any such month is treated as
received by such shareholder on December 31, provided that the Fund pays the
dividend during January of the following calendar year.
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<PAGE>
Distributions by the Fund can result in a reduction in the fair market
value of the Fund's shares. Should a distribution reduce the fair market value
below a shareholder's cost basis, such distribution nevertheless may be taxable
to the shareholder as ordinary income or capital gain, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a taxable distribution. The price of shares
purchased at that time includes the amount of any forthcoming distribution.
Those investors purchasing shares just prior to a taxable distribution will then
receive a return of investment upon distribution which will nevertheless be
taxable to them.
The Fund may be subject to foreign taxes, including foreign income
taxes. If so, the Fund intends to meet the requirements of the Code for passing
through to its shareholders the tax benefit of foreign income taxes paid,
although there is no assurance that it will be able to do so. Under this
provision, if more than half of the value of the total assets of the Fund at the
close of its taxable year consists of stock or securities of foreign
corporations, the fund will be eligible and intends to elect to pass through to
its shareholders the amount of foreign taxes it paid if such amounts are
material. Pursuant to this election, a United States shareholder will, in
general, be required to (i) include in gross income, in addition to taxable
distributions actually received, his or her pro rata share of the foreign taxes
paid by the Fund, (ii) treat that share of taxes as having been paid directly by
him or her, and (iii) either deduct such share of taxes or treat such share of
taxes as a credit against United State income tax liability. A tax-exempt
shareholder will ordinarily not benefit from this election.
Generally, a credit for foreign taxes paid by the Fund may not exceed a
shareholder's United States income tax attributable to the shareholder's foreign
source income. This limitation applies separately to different categories of
income, one of which is a foreign-source passive income, which is likely to
include all of the foreign-source income of the Fund. As a result of these
limitations, some shareholders may not be able to utilize fully any foreign tax
credits generated by an investment in the Fund. In addition, holding period
requirements apply so that, generally, the shareholder will be unable to take a
tax credit for any foreign withholding tax on a dividend payment unless (a) the
Fund held the stock in the foreign corporation for more than 15 days during the
30-day period beginning on the date that the stock becomes ex-dividend with
respect to the dividend on which the withholding tax is paid and (b) the
shareholder held his or her shares in the Fund during the same period. In the
case of certain preference dividends on foreign stock, the 15-day and 30-day
periods are extended to 45 days and 90 days, respectively. Shareholders also
will be unable to claim a credit for foreign withholding taxes on dividends if
the Fund has entered into certain hedging transactions with respect to the stock
of the foreign corporation. Shareholders may take a deduction to the extent of
any tax credits disallowed under the holding period and hedging rules. The Fund
will provide its shareholders with information about the source of its income
and the foreign taxes it has paid for use in preparing the shareholder's United
States income tax returns, including information about withholding taxes for
which a tax credit could be denied to the Fund under the holding period and
hedging rules described above.
III-52
<PAGE>
The foregoing discussion of United States federal income tax law relates
solely to the application of that law to United States persons, that is, United
States citizens and residents and United States corporations, partnerships,
trusts and estates. Each shareholder who is not a United States person should
consider the United States and foreign tax consequences of ownership of shares
of the Fund, including the possibility that such a shareholder may be subject to
United States withholding tax at a rate of up to 30% (or at a lower rate under
applicable treaty) on distributions from the Fund.
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this Statement of Additional Information
in light of their particular tax situations.
J. Distribution of Fund Shares
The Trust has entered into a Distribution Agreement with State Street
Research Investment Services, Inc., as Distributor, whereby the Distributor acts
as agent to sell and distribute shares of the Fund. Shares of the Fund are sold
through dealers who have entered into sales agreements with the Distributor. The
Distributor distributes shares of the Fund on a continuous basis at an offering
price which is based on the net asset value per share of the Fund plus (subject
to certain exceptions) a sales charge which, at the election of the investor,
may be imposed (i) at the time of purchase (the Class A shares) or (ii) on a
deferred basis (Class B(1), Class B and Class C shares). The Distributor may
reallow all or portions of such sales charges as concessions to dealers. The
Distributor may also pay its affiliate MetLife Securities, Inc. additional sales
compensation of up to 0.25% of certain sales or assets.
The differences in the price at which the Fund's Class A shares are
offered due to scheduled variations in sales charges, or Class S shares are
offered, as described in the Fund's Prospectus, result from cost savings
inherent in economies of scale, among other factors. Management believes that
the cost of sales efforts of the Distributor and broker-dealers tends to
decrease as the size of purchases increases, or does not involve any incremental
sales expenses as in the case of, for example, exchanges, reinvestments or
dividend investments at net asset value. Similarly, no significant sales effort
is necessary for sales of shares at net asset value to certain Directors,
Trustees, officers, employees, their relatives and other persons directly or
indirectly related to the Fund or associated entities. Where shares of the Fund
are offered at a reduced sales charge or without a sales charge pursuant to
sponsored arrangements, managed fee-based programs and so-called "mutual fund
supermarkets," among other special programs, the amount of the sales charge
reduction will similarly reflect the anticipated reduction in sales expenses
associated with such arrangements. The reductions in sales expenses, and
therefore the reduction in sales charges, will vary depending on factors such as
the size and other characteristics of the organization or program, and the
nature of its membership or the participants. The Fund reserves the right to
make variations in, or eliminate, sales charges at any time or to revise the
terms of or to suspend or discontinue sales pursuant to sponsored arrangements
or similar programs at any time.
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<PAGE>
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor may pay the authorized securities dealer
making such sale a commission based on the aggregate of such sales. Such
commission may also be paid to authorized securities dealers upon sales of Class
A shares made pursuant to a Letter of Intent to purchase shares having a net
asset value of $1,000,000 or more. Shares sold with such commissions payable are
subject to a one-year contingent deferred sales charge of up to 1.00% on any
portion of such shares redeemed within one year following their sale. After a
particular purchase of Class A shares is made under the Letter of Intent, the
commission will be paid only in respect of that particular purchase of shares.
If the Letter of Intent is not completed, the commission paid will be deducted
from any discounts or commissions otherwise payable to such dealer in respect of
shares actually sold. If an investor is eligible to purchase shares at net asset
value on account of the Right of Accumulation, the commission will be paid only
in respect of the incremental purchase at net asset value.
Plans of Distribution Pursuant to Rule 12b-1
- --------------------------------------------
Under the Fund's Distribution Plans, the Fund may engage, directly or
indirectly, in financing any activities primarily intended to result in the sale
of shares, including, but not limited to, (1) the payment of commissions to
underwriters, securities dealers and others engaged in the sale of shares,
including payments to the Distributor to be used to pay commissions to
securities dealers (which securities dealers may be affiliates of the
Distributor), (2) expenditures incurred by the Distributor in connection with
the distribution and marketing of shares and the servicing of investor accounts,
and (3) expenses incurred by the Distributor in connection with the servicing of
shareholder accounts including payments to securities dealers and others for the
provision of personal service to investors and/or the maintenance or servicing
of shareholder accounts. In addition, the Distribution Plans authorize the
Distributor and the Investment Manager to make payments out of management fees,
general profits, revenues or other sources to underwriters, securities dealers
and others in connection with sales of shares, to the extent, if any, that such
payments may be deemed to be an indirect financing of any activity primarily
resulting in the sale of shares of the Fund within the scope of Rule 12b-1 under
the 1940 Act. Payments under the Distribution Plan may be discontinued at any
time.
A rule of the National Association of Securities Dealers, Inc. ("NASD")
limits annual expenditures that the Fund may incur to 0.75% for distribution
expenses and 0.25% for service fees. The NASD Rule also limits the aggregate
amount that the Fund may pay for such distribution costs to 6.25% of gross share
sales of a class since the inception of any asset-based sales charge plus
interest at the prime rate plus 1% on unpaid amounts thereof (less any
contingent deferred sales charges). Such limitation does not apply to the
service fees.
Some or all of the service fees are used to pay or reimburse dealers
(including dealers that are affiliates of the Distributor) or others for
personal services and/or the maintenance of shareholder accounts. A portion of
any initial commission paid to dealers for the sale of shares of the Fund
represents payment for personal services and/or the maintenance or servicing of
III-54
<PAGE>
shareholder accounts by such dealers. Dealers who have sold Class A shares are
eligible for further reimbursement commencing as of the time of such sale.
Dealers who have sold Class B(1), Class B and Class C shares are eligible for
further reimbursement after the first year during which such shares have been
held of record by such dealer as nominee for its clients (or by such clients
directly).
The distribution fees are used primarily to offset initial and ongoing
commissions paid to dealers for selling such shares and for other sales and
marketing expenditures.
The Distributor provides distribution services on behalf of other funds
having distribution plans and receives similar payments from, and incurs similar
expenses on behalf of, such other funds. When expenses of the Distributor cannot
be identified as relating to a specific fund, the Distributor allocates expenses
among the funds in a manner deemed fair and equitable to each fund.
The payment of service and distribution fees may continue even if the
Fund ceases, temporarily or permanently, to sell one or more classes of shares
to new accounts. During the period the Fund is closed to new accounts, the
distribution fee will not be used for promotion expenses. The service and
distribution fees are used during a closed period to cover services provided to
current shareholders and to cover the compensation of financial professionals in
connection with the prior sale of Fund shares, among other non-promotional
distribution expenditures.
The Distributor may pay certain dealers and other intermediaries
additional compensation for sales and administrative services. The Distributor
may provide cash and noncash incentives to intermediaries who, for example, sell
significant amounts of shares or develop particular distribution channels. The
Distributor may compensate dealers with clients who maintain their investments
in the Fund over a period of years. The incentives can include merchandise and
trips to, and attendance at, sales seminars at resorts. The Distributor may pay
for administrative services, such as technological and computer systems support
for the maintenance of pension plan participant records, for subaccounting and
for distribution through mutual fund supermarkets or similar arrangements.
The Distributor may have also used additional resources of its own for
further expenses on behalf of the Fund.
No interested Trustee of the Trust has any direct or indirect financial
interest in the operation of the General Distribution Plan, Special Distribution
Plan or Distribution Plan or any related agreements thereunder. The
Distributor's interest in the plans is described above.
To the extent that the Glass-Steagall Act may be interpreted as
prohibiting banks and other depository institutions from being paid for
performing services under the distribution plans described above, the Fund will
make alternative arrangements for such services for shareholders who acquired
shares through such institutions.
III-55
<PAGE>
K. Calculation of Performance Data
From time to time, in advertisements or in communications to
shareholders or prospective investors, each Fund may compare the performance of
its Class A, Class B(1), Class B, Class C or Class S shares to the performance
of other mutual funds with similar investment objectives, to certificates of
deposit and/or to other financial alternatives. The Fund may also compare its
performance to appropriate indices, such as Standard & Poor's 500 Index,
Consumer Price Index and Dow Jones Industrial Average and/or to appropriate
rankings and averages such as those compiled by Lipper Analytical Services,
Inc., Morningstar, Inc., Money Magazine, Business Week, Forbes Magazine, The
Wall Street Journal and Investor's Daily.
The average annual total return ("standard total return") of the Class
A, Class B(1), Class B, Class C and Class S shares of each Fund will be
calculated as set forth below. Total return is computed separately for each
class of shares of the Fund.
Total Return
- ------------
Standard total return is computed separately for each class of shares by
determining the average annual compounded rates of return over the designated
periods that, if applied to the initial amount invested, would produce the
ending redeemable value in accordance with the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the
designated period assuming a hypothetical
$1,000 payment made at the beginning of the
designated period
The calculation is based on the further assumptions that the highest
applicable initial or contingent deferred sales charge is deducted, and that all
dividends and distributions by the Fund are reinvested at net asset value on the
reinvestment dates during the periods. All accrued expenses and recurring
charges are also taken into account as described later herein.
Yield
- -----
Yield for each class of the Fund's shares is computed by dividing the
net investment income per share earned during a recent month or other specified
30-day period by the
III-56
<PAGE>
maximum offering price per share on the last day of the period and annualizing
the result in accordance with the following formula:
YIELD = 2[(a-b + 1)6 -1]
---
cd
Where a = dividends and interest earned during the period
b = expenses accrued for the period (net of voluntary expense
reductions by the Investment Manager)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
To calculate interest earned (for the purpose of "a" above) on debt
obligations, the Fund computes the yield to effective maturity of each
obligation held by the Fund based on the market value of the obligation
(including actual accrued interest) at the close of the last business day of the
preceding period, or, with respect to obligations purchased during the period,
the purchase price (plus actual accrued interest). The yield to effective
maturity is then divided by 360 and the quotient is multiplied by the market
value of the obligation (including actual accrued interest) to determine the
interest income on the obligation for each day of the period that the obligation
is in the portfolio. Dividend income is recognized daily based on published
rates.
With respect to the treatment of discount and premium on mortgage or
other receivables-backed obligations which are expected to be subject to monthly
payments of principal and interest ("paydowns"), the Fund accounts for gain or
loss attributable to actual monthly paydowns as a realized capital gain or loss
during the period. The Fund has elected not to amortize discount or premium on
such securities.
Undeclared earned income, computed in accordance with generally accepted
accounting principles, may be subtracted from the maximum offering price.
Undeclared earned income is the net investment income which, at the end of the
base period, has not been declared as a dividend, but is reasonably expected to
be declared as a dividend shortly thereafter. The maximum offering price
includes, as applicable, a maximum sales charge of 4.5%.
All accrued expenses are taken into account as described later herein.
Yield information is useful in reviewing the Fund's performance, but
because yields fluctuate, such information cannot necessarily be used to compare
an investment in the Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often are insured and/or provide an agreed
or guaranteed fixed yield for a stated period of time. Shareholders should
remember that yield is a function of the kind and quality of the
III-57
<PAGE>
instruments in the Fund's portfolio, portfolio maturity and operating expenses
and market conditions.
Accrued Expenses and Recurring Charges
- --------------------------------------
Accrued expenses include all recurring charges that are charged to all
shareholder accounts in proportion to the length of the base period. The
standard total return and yield results take sales charges, if applicable, into
account, although the results do not take into account recurring and
nonrecurring charges for optional services which only certain shareholders elect
and which involve nominal fees, such as the $7.50 fee for wire orders.
Accrued expenses do not include the subsidization, if any, by affiliates
of fees or expenses during the subject period. In the absence of such
subsidization, the performance of the Fund would have been lower.
Nonstandardized Total Return
- ----------------------------
Each Fund may provide the above described standard total return results
for Class A, Class B(1), Class B, Class C and Class S shares for periods which
end no earlier than the most recent calendar quarter end and which begin twelve
months before, five years before and ten years before (or the commencement of
the Fund's operations, whichever is earlier). In addition, the Fund may provide
nonstandardized total return results for differing periods, such as for the most
recent six months, and/or without taking sales charges into account. Such
nonstandardized total return is computed as otherwise described under "Total
Return" except the result may or may not be annualized, and as noted any
applicable sales charge, if any, may not be taken into account and therefore not
deducted from the hypothetical initial payment of $1,000.
Distribution Rates
- ------------------
Each Fund may also quote its distribution rate for each class of shares.
The distribution rate is calculated by annualizing the latest per-share
distribution from ordinary income and dividing the result by the offering price
per share as of the end of the period to which the distribution relates. A
distribution can include gross investment income from debt obligations purchased
at a premium and in effect include a portion of the premium paid. A distribution
can also include nonrecurring, gross short-term capital gains without
recognition of any unrealized capital losses. Further, a distribution can
include income from the sale of options by the Fund even though such option
income is not considered investment income under generally accepted accounting
principles.
Because a distribution can include such premiums, capital gains and
option income, the amount of the distribution may be susceptible to control by
the Investment Manager through transactions designed to increase the amount of
such items. Also, because the distribution rate is calculated in part by
dividing the latest distribution by the offering price, which is based on
III-58
<PAGE>
net asset value plus any applicable sales charge, the distribution rate will
increase as the net asset value declines. A distribution rate can be greater
than the yield rate calculated as described above.
L. Custodian
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the custodian for Fund assets. As custodian State Street
Bank and Trust Company is responsible for, among other things, safeguarding and
controlling the Fund's cash and securities, handling the receipt and delivery of
securities and collecting interest and dividends on each Fund's investments.
State Street Bank and Trust Company is not an affiliate of the Investment
Manager or its affiliates.
M. Independent Accountants
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
02110, serves as the Trusts' independent accountants, providing professional
services including (1) audits of each Fund's annual financial statements, (2)
assistance and consultation in connection with SEC filings and (3) review of the
annual income tax returns filed on behalf of each Fund.
N. Financial Statements
In addition to the reports provided to holders of record on a semiannual
basis, other supplementary financial reports may be made available from time to
time through electronic or other media. Shareholders with substantial holdings
in one or more State Street Research Funds may also receive reports and other
information which reflect or analyze their positions in a consolidated manner.
For more information, call State Street Research Service Center.
DOCSC\783791.6
III-59
<PAGE>
STATE STREET RESEARCH SECURITIES TRUST
PART C
OTHER INFORMATION
Item 23: Exhibits
(1)(a) Master Trust Agreement and Amendment No. 1 to Master Trust
Agreement (5)
(1)(b) Amendment No. 2 to the Master Trust Agreement (7)
(1)(c) Amendment No. 3 to the Master Trust Agreement (12)
(1)(d) Amendment No. 4 to the Master Trust Agreement (12)
(1)(e) Amendment No. 5 to the Master Trust Agreement
(2) By-Laws of the Registrant (1)*
(3) Not applicable
(4) Not applicable
(5)(a) Advisory Agreement with State Street Research & Management
Company (5)
(5)(b) Letter Agreement with respect to the Advisory Agreement
relating to State Street Research Strategic Income Fund (8)
(5)(c) Letter Agreement with respect to the Advisory Agreement
relating to State Street Research Legacy Fund (12)
(5)(d) Letter Agreement with respect to the Advisory Agreement
relating to State Street Research Galileo Fund (12)
C-1
<PAGE>
(6)(a) Distribution Agreement with State Street Research Investment
Services, Inc. (5)
(6)(b) Form of Selected Dealer Agreement, as Supplemented (9)
(6)(c) Form of Bank and Bank-Affiliated Broker-Dealer Agreement (3)*
(6)(e) Letter Agreement with respect to the Distribution Agreement
relating to State Street Research Strategic Income Fund (8)
(6)(f) Letter Agreement with respect to the Distribution Agreement
relating to State Street Research Legacy Fund (12)
(6)(g) Letter Agreement with respect to the Distribution
Agreement relating to State Street Research Galileo Fund
(7) Not applicable
(8)(a) Custodian Contract with State Street Bank and Trust
Company (5)
(8)(b) Letter Agreement with respect to the Custodian Contract
relating to State Street Research Strategic Income Fund (8)
(8)(c) Letter Agreement with respect to Custodian Contract relating
to the State Street Research Legacy Fund (12)
(8)(d) Letter Agreement with respect to Custodian Contract relating
to the State Street Research Galileo Fund (12)
(8)(e) Data Access Services Addendum to Custodian Contract
(9) Not applicable
(10)(a) Opinion and Consent of Goodwin, Procter & Hoar LLP with
respect to State Street Research Intermediate Bond Fund (2)*
(10)(b) Opinion and Consent of Goodwin, Proctor and Hoar LLP with
respect to State Street Research Strategic Income Fund (6)
(10)(c) Opinion and Consent of Goodwin, Procter & Hoar LLP with
respect to State Street Research Legacy Fund (10)
(10)(d) Opinion and Consent of Goodwin, Procter & Hoar LLP with
respect to State Street Research Galileo Fund (11)
(11) Consent of Independent Accountants
(12) Not applicable
(13)(a) Purchase Agreement and Investment Letter with respect to State
Street Research Intermediate Bond Fund (8)
(13)(b) Purchase Agreement and Investment Letter with respect to
State Street Research Strategic Income Fund (8)
(13)(c) Purchase Agreements and Investment Letters with respect to
State Street Research Legacy Fund (12)
(13)(d) Subscription and Investment Letter with respect to State
Street Research Galileo Fund (12)
(14)(a) Deleted
(14)(b) Deleted
(14)(c) Deleted
(15)(a) Plan of Distribution Pursuant to Rule 12b-1 (4)
(15)(b) Letter Agreement with respect to the Plan of Distribution
Pursuant to Rule 12b-1 relating to State Street Research
Strategic Income Fund (8)
(15)(c) Letter Agreement with respect to Plan of Distribution
Pursuant to Rule 12b-1 relating to State Street Research
Legacy Fund (12)
(15)(d) Letter Agreement with respect to Plan of Distribution
Pursuant to Rule 12b-1 relating to State Street Research
Galileo Fund (12)
(15)(e) Rule 12b-1 Plan for Class B(1) shares
(16) Deleted
(17)(a) Powers of Attorney (9)
(17)(b) Power of Attorney for Susan M. Phillips
(17)(c) Power of Attorney for Bruce R. Bond
(18) Certificate of Board Resolution Respecting Powers of
Attorney
(19)(a) State Street Research New Account Application(12)
(19)(b) Additional Services Application(12)
(19)(c) MetLife Securities, Inc. New Account Application(12)
(20)(a) First Amended and Restated Multiple Class Expense Allocation
Plan (5)
(20)(b) Addendum to First Amended and Restated Multiple Class Expense
Allocation Plan
* Restated in electronic format in Post-Effective Amendment No. 7, filed on
August 29, 1997
- -------------------------------
Filed as part of the Registration Statement as noted below and incorporated
herein by reference:
<TABLE>
<CAPTION>
Footnote Securities Act of 1933
Reference Registration/Amendment Dated Filed
- --------- ---------------------- -----------
<S> <C> <C>
1 Initial Registration January 31, 1994
2 Pre-Effective Amendment No. 1 March 14, 1994
3 Post-Effective Amendment No. 1 November 19, 1994
4 Post-Effective Amendment No. 2 August 25, 1995
5 Post-Effective Amendment No. 3 June 4, 1996
6 Post-Effective Amendment No. 4 August 16, 1996
7 Post-Effective Amendment No. 5 August 29, 1996
8 Post-Effective Amendment No. 6 January 23, 1997
9 Post-Effective Amendment No. 7 August 29, 1997
10 Post-Effective Amendment No. 8 October 1, 1997
11 Post-Effective Amendment No. 9 December 22, 1997
12 Post-Effective Amendment No. 10 June 29, 1998
</TABLE>
C-2
<PAGE>
Item 25: Indemnification
Under Article VI of the Registrant's Master Trust Agreement each of its
Trustees and officers or persons serving in such capacity with another entity at
the request of the Registrant ("Covered Person") shall be indemnified against
all liabilities, including, but not limited to, amounts paid in satisfaction of
judgments, in compromises or as fines and penalties, and expenses, including
reasonable accountants' and counsel fees, incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been involved
as a party or otherwise or with which such Covered Person may be or may have
been threatened, while in office or thereafter, by reason of being or having
been such a Covered Person, except with respect to any matter as to which it has
been determined that such Covered Person had acted with willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office (such conduct being referred to
hereafter as "Disabling Conduct"). A determination that the Covered Person is
entitled to indemnification may be made by (i) a final decision on the merits by
a court or other body before which the proceeding was brought that the person to
be indemnified was not liable by reason of Disabling Conduct, (ii) dismissal of
a court action or an administrative proceeding against a Covered Person for
insufficiency of evidence of Disabling Conduct, or (iii) a reasonable
determination, based upon a review of the facts, that the indemnitee was not
liable by reason of Disabling Conduct by (a) a vote of a majority of a quorum of
Trustees who are neither "interested persons" of the Registrant as defined in
section 2(a)(19) of the 1940 Act nor parties to the proceeding, or (b) an
independent legal counsel in a written opinion.
Under the Distribution Agreement between the Registrant and State Street
Research Investment Services, Inc., the Registrant's distributor, the Registrant
has agreed to indemnify and hold harmless State Street Research Investment
Services, Inc. and each person who has been, is, or may hereafter be an officer,
director, employee or agent of State Street Research Investment Services, Inc.
against any loss, damage or expense reasonably incurred by any of them in
connection with any claim or in connection with any action, suit or proceeding
to which any of them may be a party, which arises out of or is alleged to arise
out of or is based upon a violation of any of its covenants herein contained or
any untrue or alleged untrue statement of material fact, or the omission or
alleged omission to state a material fact necessary to make the statements made
not misleading, in a Registration Statement or Prospectus of the Registrant, or
any amendment or supplement thereto, unless such statement or omission was made
in reliance upon written
C-3
<PAGE>
information furnished by State Street Research Investment Services, Inc.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act of 1933 may be permitted to trustees, officers, underwriters
and controlling persons of the Registrant, pursuant to Article VI of the
Registrant's Master Trust Agreement, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such trustee, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
C-4
<PAGE>
Item 26. Business and Other Connections of Investment Adviser
Describe any other business, profession, vocation or employment of a
substantial nature in which each investment adviser of the Registrant, and each
director, officer or partner of any such investment adviser, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee.
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
<S> <C> <C> <C>
State Street Research & Investment Adviser Various investment advisory Boston, MA
Management Company clients
Arpiarian, Tanya None
Vice President
Bangs, Linda L. None
Vice President
Barnwell, Amy F.
Vice President
Beaudry, Matthew F. Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Senior Vice
President
Bennett, Peter C. Vice President State Street Research Capital Trust Boston, MA
Director and Vice President State Street Research Exchange Trust Boston, MA
Executive Vice Vice President State Street Research Financial Trust Boston, MA
President Vice President State Street Research Growth Trust Boston, MA
Vice President State Street Research Master Investment Trust Boston, MA
Vice President State Street Research Equity Trust Boston, MA
Director State Street Research Investment Services, Inc. Boston, MA
Director and Chairman Boston Private Bank & Trust Co. Boston, MA
of Exec. Comm.
Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Securities Trust Boston, MA
President and Director Christian Camps & Conferences, Inc. Boston, MA
Chairman and Trustee Gordon College Wenham, MA
Bochman, Kathleen None
Vice President
Borzilleri, John None
Senior Vice President
(Vice President
until 4/98)
Bray, Michael J. None
Senior Vice President
(Vice President
until 4/98)
Brezinski, Karen None
Vice President
Brown, Susan H. None
Vice President
Buffum, Andrea L. None
Vice President
Burbank, John F. None
Senior Vice President
Cabrera, Jesus A. Vice President State Street Research Capital Trust Boston, MA
Senior Vice President
(Vice President
until 4/98)
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
<S> <C> <C> <C>
Calame, Mara D. Vice President and State Street Research Energy, Inc. Boston, MA
Vice President and Assistant Counsel
Assistant Secretary
Canavan, Joseph W. Assistant Treasurer State Street Research Equity Trust Boston, MA
Senior Vice President Assistant Treasurer State Street Research Financial Trust Boston, MA
(Vice President Assistant Treasurer State Street Research Income Trust Boston, MA
until 4/98) Assistant Treasurer State Street Research Money Market Trust Boston, MA
Assistant Treasurer State Street Research Tax-Exempt Trust Boston, MA
Assistant Treasurer State Street Research Capital Trust Boston, MA
Assistant Treasurer State Street Research Exchange Trust Boston, MA
Assistant Treasurer State Street Research Growth Trust Boston, MA
Assistant Treasurer State Street Research Master Investment Trust Boston, MA
Assistant Treasurer State Street Research Securities Trust Boston, MA
Assistant Treasurer State Street Research Portfolios, Inc. Boston, MA
Carstens, Linda C. Vice President State Street Research Investment Boston, MA
Vice President Services, Inc.
Clifford, Jr., Paul J. Vice President State Street Research Tax-Exempt Trust Boston, MA
Senior Vice President
Coleman, Thomas J. None
Vice President
Cullen, Terrence J. Vice President Keystone-Evergreen Boston, MA
Vice President and Counsel
and Assistant (until 2/98)
Secretary Vice President and State Street Research Investment Services, Inc. Boston, MA
Assistant Counsel
D'Vari, Ronald None
Senior Vice President
Depp, Maureen G. Vice President Wellington Management Company Boston, MA
Vice President (until 9/97)
DeVeuve, Donald None
Vice President
DiFazio, Susan M.W. Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Dillman, Thomas J. Vice President State Street Research Securities Trust Boston, MA
Senior Vice President
Drake, Susan W. None
Vice President
Dudley, Catherine Senior Portfolio Manager Chancellor Capital Management Boston, MA
Senior Vice President (until 2/98)
Duggan, Peter J. None
Senior Vice President
Ebel, Bruce A. Vice President Loomis, Sayles & Company, L.P. Chicago, IL
Senior Vice President (since 3/99)
Egel, David J. Vice President Sun Life of Canada Boston, MA
Vice President (since 4/98)
Vice President State Street Research Investment Services, Inc. Boston, MA
Even, Karen K. None
Vice President
Fazo, Steven A. None
Vice President
Federoff, Alex G. None
Vice President
Fee, Richard E. Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Feliciano, Rosalina None
Vice President
Ficco, Bonnie A. None
Vice President
Fochtman, Jr., Leo None
Vice President
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
<S> <C> <C> <C>
Gardner, Michael D. None
Senior Vice President
Geer, Bartlett R. Vice President State Street Research Equity Trust Boston, MA
Senior Vice President Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Giroux, June M. None
Vice President
Goodman, Stephanie B. Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Govoni, Electra None
Vice President
Grace, Evan None
Vice President
Granger, Allison None
Vice President
Haggerty, Bryan D. None
Vice President
Hamilton, Jr., William A. Treasurer and Director Ellis Memorial and Eldredge House Boston, MA
Senior Vice President Treasurer and Director Nautical and Aviation Publishing Company, Inc. Baltimore, MD
Treasurer and Director North Conway Institute Boston, MA
Hasson, Ira P. Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Haverty, Jr., Lawrence J. Vice President State Street Research Capital Trust Boston, MA
Senior Vice President
Heineke, George R. None
Vice President
Hickman, Joanne Managing Director Zurich Investment Management Chicago, IL
Senior Vice President (until 1/98)
Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Huang, Jesse C. None
Vice President
Jackson, Jr., Vice President State Street Research Equity Trust Boston, MA
F. Gardner Trustee Certain trusts of related and
Senior Vice President non-related individuals
Trustee and Chairman of the Vincent Memorial Hospital Boston, MA
Board
Jamieson, Frederick H. Vice President and
Senior Vice President Asst. Treasurer State Street Research Investment Services, Inc. Boston, MA
Vice President and Asst.
Treasurer SSRM Holdings, Inc. Boston, MA
Jodka, Richard Portfolio Manager Frontier Capital Management Boston, MA
Senior Vice President (until 1/98)
Vice President State Street Research Capital Trust Boston, MA
Joseph, Robert I. None
Vice President
</TABLE>
C-7
<PAGE>
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
<S> <C> <C> <C>
Kallis, John H. Vice President State Street Research Financial Trust Boston, MA
Senior Vice President Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Money Market Trust Boston, MA
Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Trustee 705 Realty Trust Washington, D.C.
Kasper, M. Katherine Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Kern, Stephen None
Vice President
Kiessling, Dyann H. Vice President State Street Research Money Market Trust Boston, MA
Vice President
Kluiber, Rudolph K. Vice President State Street Research Capital Trust Boston, MA
Senior Vice President
(Vice President
until 4/98)
Kuhn, Stephen P. None
Vice President
Langholm, Knut Director State Street Research Luxembourg
Senior Vice President
Leary, Eileen M. None
Vice President
Lomasney, Mary T. None
Vice President
Marinella, Mark A. Portfolio Manager STW Fixed Income Management, Ltd. Boston, MA
Senior Vice President (Until 8/98)
Markel, Gregory S. None
Vice President
Maurer, Jacqueline J. None
Vice President
</TABLE>
C-8
<PAGE>
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
<S> <C> <C> <C>
McKown, Elizabeth Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
McNamara, III, Francis J. Executive Vice President, State Street Research Investment Services, Inc. Boston, MA
Executive Vice Clerk and General Counsel
President, Secretary Secretary and General Counsel State Street Research Master Investment Trust Boston, MA
and General Counsel Secretary and General Counsel State Street Research Capital Trust Boston, MA
Secretary and General Counsel State Street Research Exchange Trust Boston, MA
Secretary and General Counsel State Street Research Growth Trust Boston, MA
Secretary and General Counsel State Street Research Securities Trust Boston, MA
Secretary and General Counsel State Street Research Equity Trust Boston, MA
Secretary and General Counsel State Street Research Financial Trust Boston, MA
Secretary and General Counsel State Street Research Income Trust Boston, MA
Secretary and General Counsel State Street Research Money Market Trust Boston, MA
Secretary and General Counsel State Street Research Tax-Exempt Trust Boston, MA
Secretary and General Counsel SSRM Holdings, Inc. Boston, MA
Maus, Gerard P. Treasurer State Street Research Equity Trust Boston, MA
Director, Executive Treasurer State Street Research Financial Trust Boston, MA
Vice President Treasurer State Street Research Income Trust Boston, MA
Treasurer, Chief Treasurer State Street Research Money Market Trust Boston, MA
Financial Officer and Treasurer State Street Research Tax-Exempt Trust Boston, MA
Chief Administrative Treasurer State Street Research Capital Trust Boston, MA
Officer Treasurer State Street Research Exchange Trust Boston, MA
Treasurer State Street Research Growth Trust Boston, MA
Treasurer State Street Research Master Investment Trust Boston, MA
Treasurer State Street Research Securities Trust Boston, MA
Director, Executive Vice State Street Research Investment Services, Inc. Boston, MA
President, Treasurer and
Chief Financial Officer
Director Metric Holdings, Inc. San Francisco, CA
Director Certain wholly-owned subsidiaries
of Metric Holdings, Inc.
Treasurer and Chief SSRM Holdings, Inc. Boston, MA
Financial Officer
Director State Street Research Luxembourg
Milder, Judith J. None
Senior Vice President
Miller, Joan D. Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Senior Vice President
</TABLE>
C-9
<PAGE>
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
<S> <C> <C> <C>
Moore, Jr., Thomas P. Vice President State Street Research Equity Trust Boston, MA
Senior Vice Director Hibernia Savings Bank Quincy, MA
President Governor on the Board Association for Investment Management Charlottesville, VA
of Governors and Research
Morey, Andrew None
Vice President
Mulligan, JoAnne C. None
Senior Vice President
Orr, Stephen C. Member Technology Analysts of Boston Boston, MA
Vice President Member Electro-Science Analysts (of NYC) New York, NY
Paddon, Steven W. None
Vice President
Pannell, James C. None
Executive Vice President
Peters, Kim M. Vice President State Street Research Securities Trust Boston, MA
Senior Vice President
Pierce, James D. None
Vice President
Poritzky, Dean E. None
Vice President
Pyle, David J. None
Vice President
Ragsdale, E.K. Easton Vice President State Street Research Financial Trust Boston, MA
Senior Vice President
Ransom, Clifford Director of NatWest Markets
Vice President Special Situations
Rawlins, Jeffrey A. None
Senior Vice President
Rice III, Daniel Joseph Vice President State Street Research Equity Trust Boston, MA
Senior Vice President
</TABLE>
C-10
<PAGE>
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
<S> <C> <C> <C>
Romich, Douglas A. Assistant Treasurer State Street Research Equity Trust Boston, MA
Senior Vice President Assistant Treasurer State Street Research Financial Trust Boston, MA
(Vice President Assistant Treasurer State Street Research Income Trust Boston, MA
until 4/98) Assistant Treasurer State Street Research Money Market Trust Boston, MA
Assistant Treasurer State Street Research Tax-Exempt Trust Boston, MA
Assistant Treasurer State Street Research Capital Trust Boston, MA
Assistant Treasurer State Street Research Exchange Trust Boston, MA
Assistant Treasurer State Street Research Growth Trust Boston, MA
Assistant Treasurer State Street Research Master Investment Trust Boston, MA
Assistant Treasurer State Street Research Securities Trust Boston, MA
Ryan, Michael J. Vice President Delaware Management Philadelphia, PA
Senior Vice President (until 1/98)
Sanderson, Derek Senior Vice President Freedom Capital Management Boston, MA
Senior Vice President (until 10/97)
Saperstone, Paul None
Vice President
Schrage, Michael None
Vice President
Shaver, Jr. C. Troy President, Chief State Street Research Investment Services, Inc. Boston, MA
Executive Vice Executive Officer and
President Executive Vice President
Shean, William G. None
Vice President
Shively, Thomas A. Vice President State Street Research Financial Trust Boston, MA
Director and Vice President State Street Research Money Market Trust Boston, MA
Executive Vice Vice President State Street Research Tax-Exempt Trust Boston, MA
President Director State Street Research Investment Services, Inc Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Shoemaker, Richard D. None
Senior Vice President
Simi, Susan None
Vice President
Stambaugh, Kenneth None
Vice President
(Assistant Vice
President until 9/97)
Strelow, Dan R. None
Senior Vice President
</TABLE>
C-11
<PAGE>
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
<S> <C> <C> <C>
Stolberg, Thomas None
Vice President
Swanson, Amy McDermott None
Senior Vice President
Tice, Robyn S. None
Vice President
Trebino, Anne M. Vice President SSRM Holdings, Inc. Boston, MA
Senior Vice President
Verni, Ralph F. Chairman, President, Chief State Street Research Capital Trust Boston, MA
Chairman, President, Executive Officer and Trustee
Chief Executive Chairman, President, Chief State Street Research Exchange Trust Boston, MA
Officer and Executive Officer and Trustee
Director Chairman, President, Chief State Street Research Growth Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Master Investment Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Securities Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Equity Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Financial Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Income Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Money Market Trust Boston, MA
Executive Officer and Director
Chairman, President, Chief State Street Research Tax-Exempt Trust Boston, MA
Executive Officer and Trustee
Chairman and Director State Street Research Investment Services, Inc. Boston, MA
(President and Chief Executive
Officer until 2/96)
Chairman and Director Metric Holdings, Inc. San Francisco, CA
Director and Officer Certain wholly-owned subsidiaries
of Metric Holdings, Inc.
Chairman of the Board MetLife Securities, Inc. New York, NY
and Director (until 1/97)
President, Chief Executive SSRM Holdings, Inc. Boston, MA
Officer and Director
Director Colgate University Hamilton, NY
Director State Street Research Luxembourg
Chairman and Director SSR Realty Advisors, Inc. San Francisco, CA
</TABLE>
C-12
<PAGE>
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
<S> <C> <C> <C>
Wallace, Julie K. None
Vice President
Walsh, Denis J. None
Vice President
Walsh, Tucker None
Vice President
Watts, Evan D., Jr. Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Weiss, James M. Vice President State Street Research Exchange Trust Boston, MA
Executive Vice President Vice President State Street Research Financial Trust Boston, MA
(Senior Vice President) Vice President State Street Research Growth Trust Boston, MA
until 6/98) Vice President State Street Research Securities Trust Boston, MA
Vice President State Street Research Capital Trust Boston, MA
Vice President State Street Research Equity Trust Boston, MA
Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Master Investment Trust Boston, MA
Welch, Timothy M. None
Vice President
Westvold, Vice President State Street Research Securities Trust Boston, MA
Elizabeth McCombs
Senior Vice President
Wilkins, Kevin Senior Vice President State Street Research Investment Boston, MA
Senior Vice President (Vice President until 9/98) Services, Inc.
(Vice President
until 9/98)
Wilson, John T. Vice President State Street Research Equity Trust Boston, MA
Senior Vice President Vice President State Street Research Master Investment Trust Boston, MA
(Vice President
until 4/98)
</TABLE>
C-13
<PAGE>
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
<S> <C> <C> <C>
Wing, Darman A. Senior Vice President and State Street Research Investment Services, Inc. Boston, MA
Senior Vice President, Asst. Clerk
Assistant Secretary Assistant Secretary and State Street Research Capital Trust Boston, MA
and Assistant Assistant General Counsel
General Counsel Assistant Secretary and State Street Research Exchange Trust Boston, MA
(Vice President Assistant General Counsel
until 4/98) Assistant Secretary and State Street Research Growth Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Master Investment Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Securities Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Equity Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Financial Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Income Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Money Market Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Tax-Exempt Trust Boston, MA
Assistant General Counsel
Assistant Secretary and SSRM Holdings, Inc. Boston, MA
Assistant General Counsel
Woodbury, Robert S. None
Vice President
Woodworth, Jr., Kennard Vice President State Street Research Exchange Trust Boston, MA
Senior Vice Vice President State Street Research Growth Trust Boston, MA
President Vice President State Street Research Securities Trust Boston, MA
Wu, Norman N. Partner Atlantic-Acton Realty Framingham, MA
Senior Vice President Director Bond Analysts Society of Boston Boston, MA
Zuger, Peter A. Vice President State Street Research Equity Trust Boston, MA
Senior Vice Portfolio Manager American Century
President (until 9/98) Investment Management
</TABLE>
C-14
<PAGE>
Item 27. Principal Underwriters
(a) State Street Research Investment Services, Inc. serves as principal
underwriter for State Street Research Equity Trust, State Street Research
Financial Trust, State Street Research Income Trust, State Street Research Money
Market Trust, State Street Research Tax-Exempt Trust, State Street Research
Capital Trust, State Street Research Master Investment Trust, State Street
Research Growth Trust, State Street Research Securities Trust, State Street
Research Portfolios, Inc. and State Street Research Institutional Funds.
(b) Directors and Officers of State Street Research Investment Services,
Inc. are as follows:
<TABLE>
<CAPTION>
(1) (2) (3)
Positions
Name and Principal and Offices Positions and Offices
Business Address with Underwriter with Fund
- ------------------ ---------------- ---------------------
<S> <C> <C>
Ralph F. Verni Chairman of the Chairman of the
One Financial Center Board Board, President,
Boston, MA 02111 and Director Chief Executive Officer and
Trustee
Peter C. Bennett Director Vice President
One Financial Center
Boston, MA 02111
Gerard P. Maus Executive Vice Treasurer
One Financial Center President, Treasurer,
Boston, MA 02111 Chief Financial
Officer and Director
Thomas A. Shively Director Vice President
One Financial Center
Boston, MA 02111
C. Troy Shaver, Jr. President, Chief None
One Financial Center Executive Officer and
Boston, MA 02111 Executive Vice President
Francis J. McNamara, III Executive Vice Secretary
One Financial Center President, General Counsel
Boston, MA 02111 and Clerk
Matthew F. Beaudry Senior Vice President None
One Financial Center
Boston, MA 02111
Peter Borghi Senior Vice President None
One Financial Center
Boston, MA 02111
</TABLE>
C-15
<PAGE>
<TABLE>
<CAPTION>
(1) (2) (3)
Positions
Name and Principal and Offices Positions and Offices
Business Address with Underwriter with Fund
- ------------------ ---------------- ---------------------
<S> <C> <C>
Paul V. Daly Senior Vice None
One Financial Center President
Boston, MA 02111
Susan M.W. DiFazio Senior Vice None
One Financial Center President
Boston, MA 02111
Joanne Hickman Senior Vice President None
One Financial Center
Boston, MA 02111
Russell A. LaBrasca Senior Vice President None
One Financial Center
Boston, MA 02111
Joan D. Miller Senior None
One Financial Center Vice President
Boston, MA 02111
Kevin Wilkins Senior Vice President None
One Financial Center
Boston, MA 02111
Darman A. Wing Senior Vice Assistant Secretary
One Financial Center President, Assistant General
Boston, MA 02111 Counsel and Assistant Clerk
Amy F. Barnwell Vice President None
One Financial Center
Boston, MA 02111
Linda C. Carstens Vice President None
One Financial Center
Boston, MA 02111
Terrence J. Cullen Vice President None
One Financial Center and Counsel
Boston, MA 02111
David J. Egel Vice President None
One Financial Center
Boston, MA 02111
Richard Fee Vice President None
One Financial Center
Boston, MA 02111
</TABLE>
C-16
<PAGE>
<TABLE>
<CAPTION>
(1) (2) (3)
Positions
Name and Principal and Offices Positions and Offices
Business Address with Underwriter with Fund
- ------------------ ---------------- ---------------------
<S> <C> <C>
Stephanie B. Goodman Vice President None
One Financial Center
Boston, MA 02111
Ira P. Hasson Vice President None
One Financial Center
Boston, MA 02111
Frederick H. Jamieson Vice President None
One Financial Center and Assistant
Boston, MA 02111 Treasurer
M. Katherine Kasper Vice President None
One Financial Center
Boston, MA 02111
Elizabeth G. McKown Vice President None
One Financial Center
Boston, MA 02111
Amy L. Simmons Vice President Assistant Secretary
One Financial Center
Boston, MA 02111
</TABLE>
C-17
<PAGE>
Item 27. Principal Underwriters
(a) State Street Research Investment Services, Inc. serves as principal
underwriter for State Street Research Equity Trust, State Street Research
Financial Trust, State Street Research Income Trust, State Street Research Money
Market Trust, State Street Research Tax-Exempt Trust, State Street Research
Capital Trust, State Street Research Master Investment Trust, State Street
Research Growth Trust, State Street Research Securities Trust, State Street
Research Portfolios, Inc. and State Street Research Institutional Funds.
(b) Directors and Officers of State Street Research Investment Services,
Inc. are as follows:
<TABLE>
<CAPTION>
(1) (2) (3)
Positions
Name and Principal and Offices Positions and Offices
Business Address with Underwriter with Fund
- ------------------ ---------------- ---------------------
<S> <C> <C>
Ralph F. Verni Chairman of the Chairman of the
One Financial Center Board Board, President,
Boston, MA 02111 and Director Chief Executive Officer and
Trustee
Peter C. Bennett Director Vice President
One Financial Center
Boston, MA 02111
Gerard P. Maus Executive Vice Treasurer
One Financial Center President, Treasurer,
Boston, MA 02111 Chief Financial
Officer and Director
Thomas A. Shively Director Vice President
One Financial Center
Boston, MA 02111
C. Troy Shaver, Jr. President, Chief None
One Financial Center Executive Officer and
Boston, MA 02111 Executive Vice President
Francis J. McNamara, III Executive Vice Secretary
One Financial Center President, General Counsel
Boston, MA 02111 and Clerk
Matthew F. Beaudry Senior Vice President None
One Financial Center
Boston, MA 02111
Peter Borghi Senior Vice President None
One Financial Center
Boston, MA 02111
</TABLE>
C-18
<PAGE>
<TABLE>
<CAPTION>
(1) (2) (3)
Positions
Name and Principal and Offices Positions and Offices
Business Address with Underwriter with Fund
- ------------------ ---------------- ---------------------
<S> <C> <C>
Paul V. Daly Senior Vice None
One Financial Center President
Boston, MA 02111
Susan M.W. DiFazio Senior Vice None
One Financial Center President
Boston, MA 02111
Joanne Hickman Senior Vice President None
One Financial Center
Boston, MA 02111
Russell A. LaBrasca Senior Vice President None
One Financial Center
Boston, MA 02111
Joan D. Miller Senior None
One Financial Center Vice President
Boston, MA 02111
Kevin Wilkins Senior Vice President None
One Financial Center
Boston, MA 02111
Darman A. Wing Senior Vice Assistant Secretary
One Financial Center President, Assistant General
Boston, MA 02111 Counsel and Assistant Clerk
Amy F. Barnwell Vice President None
One Financial Center
Boston, MA 02111
Linda C. Carstens Vice President None
One Financial Center
Boston, MA 02111
Terrence J. Cullen Vice President None
One Financial Center and Counsel
Boston, MA 02111
David J. Egel Vice President None
One Financial Center
Boston, MA 02111
Richard Fee Vice President None
One Financial Center
Boston, MA 02111
</TABLE>
C-19
<PAGE>
<TABLE>
<CAPTION>
(1) (2) (3)
Positions
Name and Principal and Offices Positions and Offices
Business Address with Underwriter with Fund
- ------------------ ---------------- ---------------------
<S> <C> <C>
Stephanie B. Goodman Vice President None
One Financial Center
Boston, MA 02111
Ira P. Hasson Vice President None
One Financial Center
Boston, MA 02111
Frederick H. Jamieson Vice President None
One Financial Center and Assistant
Boston, MA 02111 Treasurer
M. Katherine Kasper Vice President None
One Financial Center
Boston, MA 02111
Elizabeth G. McKown Vice President None
One Financial Center
Boston, MA 02111
Amy L. Simmons Vice President Assistant Secretary
One Financial Center
Boston, MA 02111
</TABLE>
C-20
<PAGE>
Item 28: Location of Accounts and Records
Gerard P. Maus
State Street Research & Management Company
One Financial Center
Boston, MA 02111
Item 29: Management Services
Under a Shareholders' Administrative Services Agreement between
Registrant and the Distributor, the Distributor provides shareholders'
administrative services, such as responding to inquiries and instructions from
investors respecting the purchase and redemption of shares of series of the
Registrant and received the amounts set forth below:
<TABLE>
<CAPTION>
Year-end Year-end Year-end
4/30/97 4/30/98 4/30/99
------- ------- -------
<S> <C> <C> <C>
State Street Research
Strategic Income Fund $3,838.24 $22,070.69 $51,543.57
State Street Research
Legacy Fund N/A $ 3,537.48 $67,692.26
State Street Research
Galileo Fund N/A $ 895.28 $39,203.73
</TABLE>
Item 30: Undertakings
(a) Inapplicable.
(b) Deleted.
(c) Deleted.
(d) The Registrant undertakes to hold a special meeting of
shareholders of the Trust for the purpose of voting upon the question of removal
of any trustee or trustees when requested in writing to do so by the record
holders of not less than 10 per centum of the outstanding shares of the Trust
and, in connection with such meeting, to comply with the provisions of
Section 16(c) of the Investment Company Act of 1940 relating to shareholder
communications.
(e) Deleted.
(f) Deleted.
C-21
<PAGE>
Notice
A copy of the Master Trust Agreement of the Registrant is on file with the
Secretary of State of the Commonwealth of Massachusetts and notice is hereby
given that the obligations of the Registrant hereunder, and the authorization,
execution and delivery of this amendment to the Registrant's Registration
Statement, shall not be binding upon any of the Trustees, shareholders,
nominees, officers, agents or employees of the Registrant as individuals or
personally, but shall bind only the property of the Funds of the Registrant, as
provided in the Master Trust Agreement. Each Fund of the Registrant shall be
solely and exclusively responsible for all of its direct or indirect debts,
liabilities and obligations, and no other Fund shall be responsible for the
same.
C-22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 10 to its Registration Statement on Form N-1A to be
signed on its behalf by the undersigned, thereto duly authorized, in the City of
Boston and The Commonwealth of Massachusetts, on the 30th day of June, 1998.
STATE STREET RESEARCH SECURITIES TRUST
By: *
------------------------
Ralph F. Verni
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed on the
above date by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
* Trustee, Chairman of the Board and
--------------------- Chief Executive Officer
Ralph F. Verni (Principal Executive Officer)
* Treasurer (Principal Financial and
--------------------- Accounting Officer)
Gerard P. Maus
* Trustee
---------------------
Steve A. Garban
* Trustee
---------------------
Malcolm T. Hopkins
* Trustee
---------------------
Edward M. Lamont
* Trustee
---------------------
Robert A. Lawrence
* Trustee
---------------------
Dean O. Morton
C-23
<PAGE>
* Trustee
---------------------
Toby Rosenblatt
* Trustee
---------------------
Michael S. Scott Morton
</TABLE>
*By: /s/ Francis J. McNamara, III
-------------------------------
Francis J. McNamara, III
Attorney-in-Fact
under Powers of Attorney
dated August 29, 1997,
incorporated by reference
from Post-Effective Amendment
No 7.
C-24
<PAGE>
1933 Act Registration No. 33-74628
1940 Act File No. 811-8322
- ---------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. __ [ ]
Post-Effective Amendment No. 11 [X]
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 12 [X]
--------------------
STATE STREET RESEARCH SECURITIES TRUST
(Exact Name of Registrant as Specified in Declaration of Trust)
--------------------
EXHIBITS
<PAGE>
INDEX TO EXHIBITS
(1) (e) Amendment No. 5 to the Master Trust Agreement
(8) (e) Data Access Services Addendum to Custodian Contract
(11) Consent of Independent Accountants
(15)(e) Rule 12b-1 Plan for Class B(1) Shares
(17)(b) Power of Attorney for Susan M. Phillips
(17)(c) Power of Attorney for Bruce R. Bond
(18) Certificate of Board Resolution Respecting Powers of Attorney
(20)(b) Addendum to First Amended and Restated Multiple Class Expense
Allocation Plan
2
STATE STREET RESEARCH SECURITIES TRUST
Amendment No. 5 to Master Trust Agreement
INSTRUMENT OF AMENDMENT
Pursuant to Article VII, Section 7.3 and Article IV, Section 4.1 of the
Master Trust Agreement of State Street Research Securities Trust (the "Trust")
dated January 25, 1994 (the "Master Trust Agreement"), as heretofore amended,
the following action is taken:
The first sentence of the first paragraph of Article IV, Section 4.2 of
the Master Trust Agreement is hereby amended to read as follows:
"Section 4.2 Establishment and Designation of Sub-Trusts. Without
limiting the authority of the Trustees set forth in Section 4.1 to
establish and designate further Sub-Trusts or classes, the Trustees
hereby establish and designate the following Sub-Trusts: State Street
Research Strategic Income Fund, State Street Research Legacy Fund and
State Street Research Galileo Fund."
This Amendment shall operate to abolish State Street Research
Intermediate Bond Fund, which has been liquidated.
This Amendment shall be effective as of February 23, 1999.
IN WITNESS WHEREOF, the undersigned assistant officer of the Trust
hereby adopts the foregoing on behalf of the Trust pursuant to authorization by
the Trustees of the Trust.
/s/ Darman A. Wing
------------------------------
Darman A. Wing
Assistant Secretary
DATA ACCESS SERVICES ADDENDUM TO CUSTODIAN AGREEMENT
----------------------------------------------------
AGREEMENT between each fund listed on Appendix A, (individually a "Fund"
and collectively, the "Funds") as amended from time to time, and State Street
Bank and Trust Company ("State Street").
PREAMBLE
WHEREAS, State Street has been appointed as custodian of certain assets
of each Fund pursuant to a certain Custodian Agreement (the "Custodian
Agreement") for each of the respective Funds;
WHEREAS, State Street has developed and utilizes proprietary accounting
and other systems, including State Street's proprietary Multicurrency HORIZON(R)
Accounting System, in its role as custodian of each Fund, and maintains certain
Fund-related data ("Fund Data") in databases under the control and ownership of
State Street (the "Data Access Services"); and
WHEREAS, State Street makes available to each Fund certain Data Access
Services solely for the benefit of the Fund, and intends to provide additional
services, consistent with the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and for other good and valuable consideration, the parties
agree as follows:
1. SYSTEM AND DATA ACCESS SERVICES
a. System. Subject to the terms and conditions of this Agreement, State
Street hereby agrees to provide each Fund with access to State Street's
Multicurrency HORIZON(R) Accounting System and the other information systems
(collectively, the "System") as described in Attachment A, on a remote basis for
the purpose of obtaining reports, solely on computer hardware, system software
and telecommunication links, as listed in Attachment B (the "Designated
Configuration") of the Fund, or certain third parties approved by State Street
that serve as investment advisors or investment managers (the "Investment
Advisor") or independent auditors (the "Independent Auditors") of a Fund and
solely with respect to the Fund or on any designated substitute or back-up
equipment configuration with State Street's written consent, such consent not to
be unreasonably withheld.
b. Data Access Services. State Street agrees to make available to each
Fund the Data Access Services subject to the terms and conditions of this
Agreement and data access operating standards and procedures as may be issued by
State Street from time to time. The ability of each Fund to originate electronic
instructions to State Street on behalf of each Fund in order to (i) effect the
transfer or movement of cash or securities held under custody by State Street or
(ii) transmit accounting or other information (such transactions are referred to
herein as "Client
<PAGE>
Originated Electronic Financial Instructions"), and (iii) access data for the
purpose of reporting and analysis, shall be deemed to be Data Access Services
for purposes of this Agreement.
c. Additional Services. State Street may from time to time agree to make
available to a Fund additional Systems that are not described in the attachments
to this Agreement. In the absence of any other written agreement concerning such
additional systems, the term "System" shall include, and this Agreement shall
govern, a Fund's access to and use of any additional System made available by
State Street and/or accessed by the Fund.
2. NO USE OF THIRD PARTY SOFTWARE
State Street and each Fund acknowledge that in connection with the Data
Access Services provided under this Agreement, each Fund will have access,
through the Data Access Services, to Fund Data and to functions of State
Street's proprietary systems; provided, however that in no event will the Fund
have direct access to any third party systems-level software that retrieves data
for, stores data from, or otherwise supports the System.
3 . LIMITATION ON SCOPE OF USE
a. Designated Equipment: Designated Location. The System and the
Data Access Services shall be used and accessed solely on and through
the Designated Configuration at the offices of a Fund or the Investment
Advisor or Independent Auditor located in Boston, Massachusetts
("Designated Location").
b. Designated Configuration: Trained Personnel. State Street shall be
responsible for supplying, installing and maintaining the Designated
Configuration at the Designated Location. State Street and each Fund agree that
each will engage or retain the services of trained personnel to enable both
State Street and the Fund to perform their respective obligations under this
Agreement. State Street agrees to use commercially reasonable efforts to
maintain the System so that it remains serviceable, provided, however, that
State Street does not guarantee or assure uninterrupted remote access use of the
System.
c. Scope of Use. Each Fund will use the System and the Data Access
Services only for the processing of securities transactions, the keeping of
books of account for the Fund and accessing data for purposes of reporting and
analysis. Each Fund shall not, and shall cause its employees and agents not to
(i) permit any third party to use the System or the Data Access Services, (ii)
sell, rent, license or otherwise use the System or the Data Access Services in
the operation of a service bureau or for any purpose other than as expressly
authorized under this Agreement, (iii) use the System or the Data Access
Services for any fund, trust or other investment vehicle without the prior
written consent of State Street, (iv) allow access to the System or the Data
Access Services through terminals or any other computer or telecommunications
facilities located outside the Designated Locations, (v) allow or cause any
information (other than portfolio holdings, valuations of portfolio holdings,
and other information reasonably necessary for the management or distribution of
the assets of the Fund) transmitted from State Street's databases, including
data from third party sources, available through use of the
2
<PAGE>
System or the Data Access Services to be redistributed or retransmitted to
another computer, terminal or other device for other than use for or on behalf
of the Fund or (vi) modify the System in any way, including without limitation,
developing any software for or attaching any devices or computer programs to any
equipment, system, software or database which forms a part of or is resident on
the Designated Configuration.
d. Other Locations. Except in the event of an emergency or of a planned
System shutdown, each Fund's access to services performed by the System or to
Data Access Services at the Designated Location may be transferred to a
different location only upon the prior written consent of State Street. In the
event of an emergency or System shutdown, each Fund may use any back-up site
included in the Designated Configuration or any other back-up site agreed to by
State Street, which agreement will not be unreasonably withheld. Each Fund may
secure from State Street the right to access the System or the Data Access
Services through computer and telecommunications facilities or devices complying
with the Designated Configuration at additional locations only upon the prior
written consent of State Street and on terms to be mutually agreed upon by the
parties.
e. Title. Title and all ownership and proprietary rights to the System,
including any enhancements or modifications thereto, whether or not made by
State Street, are and shall remain with State Street.
f. No Modification. Without the prior written consent of State Street, a
Fund shall not modify, enhance or otherwise create derivative works based upon
the System, nor shall the Fund reverse engineer, decompile or otherwise attempt
to secure the source code for all or any part of the System.
g. Security Procedures. Each Fund shall comply with data access operating
standards and procedures and with user identification or other password control
requirements and other security procedures as may be issued from time to time by
State Street for use of the System on a remote basis and to access the Data
Access Services. Each Fund shall have access only to the Fund Data and
authorized transactions agreed upon from time to time by State Street and, upon
notice from State Street, the Fund shall discontinue remote use of the System
and access to Data Access Services for any security reasons cited by State
Street; provided, that, in such event, State Street shall, for a period not less
than 180 days (or such other shorter period specified by the Fund) after such
discontinuance, assume responsibility to provide accounting services under the
terms of the Custodian Agreement.
h. Inspections. State Street shall have the right to inspect the use of
the System and the Data Access Services by the Fund and the Investment Advisor
to ensure compliance with this Agreement. The on-site inspections shall be upon
prior written notice to Fund and the Investment Advisor and at reasonably
convenient times and frequencies so as not to result in an unreasonable
disruption of the Fund's or the Investment Advisor's business.
3
<PAGE>
4. PROPRIETARY INFORMATION
a. Proprietary Information. Each Fund acknowledges and State Street
represents that the System and the databases, computer programs, screen formats,
report formats, interactive design techniques, documentation and other
information made available to the Fund by State Street as part of the Data
Access Services and through the use of the System constitute copyrighted, trade
secret, or other proprietary information of substantial value to State Street.
Any and all such information provided by State Street to each Fund shall be
deemed proprietary and confidential information of State Street (hereinafter
"Proprietary Information"). Each Fund agrees that it will hold such Proprietary
Information in confidence and secure and protect it in a manner consistent with
its own procedures for the protection of its own confidential information and to
take appropriate action by instruction or agreement with its employees who are
permitted access to the Proprietary Information to satisfy its obligations
hereunder. Each Fund further acknowledges that State Street shall not be
required to provide the Investment Advisor or the Investment Auditor with access
to the System unless it has first received from the Investment Advisor of the
Investment Auditor an undertaking with respect to State Street's Proprietary
Information in the form of Attachment C and/or Attachment C-1 to this Agreement.
Each Fund shall use all commercially reasonable efforts to assist State Street
in identifying and preventing any unauthorized use, copying or disclosure of the
Proprietary Information or any portions thereof or any of the logic, formats or
designs contained therein.
b. Cooperation. Without limitation of the foregoing, each Fund shall
advise State Street immediately in the event the Fund learns or has reason to
believe that any person to whom the Fund has given access to the Proprietary
Information, or any portion thereof, has violated or intends to violate the
terms of this Agreement, and each Fund will, at its expense, co-operate with
State Street in seeking injunctive or other equitable relief in the name of the
Fund or State Street against any such person.
c. Injunctive Relief. Each Fund acknowledges that the disclosure of any
Proprietary Information, or of any information which at law or equity ought to
remain confidential, will immediately give rise to continuing irreparable injury
to State Street inadequately, compensable in damages at law. In addition, State
Street shall be entitled to obtain immediate injunctive relief against the
breach or threatened breach of any of the foregoing undertakings, in addition to
any other legal remedies which may be available.
d. Survival. The provisions of this Section 4 shall survive the
termination of this Agreement.
5. LIMITATION ON LIABILITY
a. Limitation on Amount and Time for Bringing Action. Each Fund agrees
any liability of State Street to the Fund or any third party arising out of
State Street's provision of Data Access Services or the System under this
Agreement shall be limited to the amount paid by the Fund for the preceding 24
months for such services. In no event shall State Street be liable to the Fund
or any other party for any special, indirect, punitive or consequential damages
even if
4
<PAGE>
advised of the possibility of such damages. No action, regardless of form,
arising out of this Agreement may be brought by the Fund more than two years
after the Fund has knowledge that the cause of action has arisen.
b. NO OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, ARE MADE BY STATE STREET. IN NO EVENT WILL STATE STREET BE
LIABLE TO THE FUND OR ANY OTHER PARTY FOR ANY CONSEQUENTIAL OR INCIDENTAL
DAMAGES WHICH MAY ARISE FROM THE FUND'S ACCESS TO THE SYSTEM OR USE OF
INFORMATION OBTAINED THEREBY.
c. Third-Party Data. Organizations from which State Street may obtain
certain data included in the System or the Data Access Services are solely
responsible for the contents of such data, and State Street shall have no
liability for claims arising out of the contents of such third-party data,
including, but not limited to, the accuracy thereof.
d. Regulatory Requirements. As between State Street and each Fund, the
Fund shall be solely responsible for the accuracy of any accounting statements
or reports produced using the Data Access Services and the System and the
conformity thereof with any requirements of law.
e. Force Majeure. Neither State Street or a Fund shall be liable for any
costs or damages due to delay or nonperformance under this Agreement arising out
of any cause or event beyond such party's control, including without limitation,
cessation of services hereunder or any damages resulting therefrom to the other
party, or the Fund as a result of work stoppage, power or other mechanical
failure, computer virus, natural disaster, governmental action, or communication
disruption.
6. INDEMNIFICATION
Each Fund agrees to indemnify and hold State Street harmless from any
loss, damage or expense including reasonable attorney's fees, (a "loss")
suffered by State Street arising from (i) the negligence or willful misconduct
in the use by the Fund of the Data Access Services or the System, including any
loss incurred by State Street resulting from a security breach at the Designated
Location or committed by the Fund's employees or agents or the Investment
Advisor or the Independent Auditor of the Fund and (ii) any loss resulting from
incorrect Client Originated Electronic Financial Instructions. State Street
shall be entitled to rely on the validity and authenticity of Client Originated
Electronic Financial Instructions without undertaking any further inquiry as
long as such instruction is undertaken in conformity with security procedures
established by State Street from time to time.
7. FEES
Fees and charges for the use of the System and the Data Access Services
and related payment terms shall be as set forth in the Custody Fee Schedule in
effect from time to time
5
<PAGE>
between the parties (the "Fee Schedule"). Any tariffs, duties or taxes imposed
or levied by any government or governmental agency by reason of the transactions
contemplated by this Agreement, including, without limitation, federal, state
and local taxes, use, value added and personal property taxes (other than
income, franchise or similar taxes which may be imposed or assessed against
State Street) shall be borne by each Fund. Any claimed exemption from such
tariffs, duties or taxes shall be supported by proper documentary evidence
delivered to State Street.
8. TRAINING, IMPLEMENTATION AND CONVERSION
a. Training. State Street agrees to provide training, at a designated
State Street training facility or at the Designated Location, to the Fund's
personnel in connection with the use of the System on the Designated
Configuration. Each Fund agrees that it will set aside, during regular business
hours or at other times agreed upon by both parties, sufficient time to enable
all operators of the System and the Data Access Services, designated by the
Fund, to receive the training offered by State Street pursuant to this
Agreement.
b. Installation and Conversion. State Street shall be responsible for the
technical installation and conversion ("Installation and Conversion") of the
Designated Configuration. Each Fund shall have the following responsibilities in
connection with Installation and Conversion of the System:
(i) The Fund shall be solely responsible for the timely acquisition and
maintenance of the hardware and software that attach to the
Designated Configuration in order to use the Data Access Services
at the Designated Location.
(ii) State Street and the Fund each agree that they will assign
qualified personnel to actively participate during the Installation
and Conversion phase of the System implementation to enable both
parties to perform their respective obligations under this
Agreement.
9. SUPPORT
During the term of this Agreement, State Street agrees to provide the
support services set out in Attachment D to this Agreement.
6
<PAGE>
10. TERM OF AGREEMENT
a. Term of Agreement. This Agreement shall become effective on the date
of its execution by State Street and shall remain in full force and effect until
terminated as herein provided.
b. Termination of Agreement. Any party may terminate this Agreement (i)
for any reason by giving the other parties at least one-hundred and eighty days'
prior written notice in the case of notice of termination by State Street to the
Fund or thirty days' notice in the case of notice from the Fund to State Street
of termination; or (ii) immediately for failure of the other party to comply
with any material term and condition of the Agreement by giving the other party
written notice of termination. In the event the Fund shall cease doing business,
shall become subject to proceedings under the bankruptcy laws (other than a
petition for reorganization or similar proceeding) or shall be adjudicated
bankrupt, this Agreement and the rights granted hereunder shall, at the option
of State Street, immediately terminate with notice to the Fund. Termination of
this Agreement with respect to any given Fund shall in no way affect the
continued validity of this Agreement with respect to any other Fund. This
Agreement shall in any event terminate as to any Fund within 90 days after the
termination of the Custodian Agreement applicable to such Fund.
c. Termination of the Right to Use. Upon termination of this Agreement
for any reason, any right to use the System and access to the Data Access
Services shall terminate and the Fund shall immediately cease use of the System
and the Data Access Services. Immediately upon termination of this Agreement for
any reason, the Fund shall return to State Street all copies of documentation
and other Proprietary Information in its possession; provided, however, that in
the event that either State Street or the Fund terminates this Agreement or the
Custodian Agreement for any reason other than the Fund's breach, State Street
shall provide the Data Access Services for a period of time and at a price to be
agreed upon by State Street and the Fund.
11. MISCELLANEOUS
a. Assignment; Successors. This Agreement and the rights and obligations
of each Fund and State Street hereunder shall not be assigned by any party
without the prior written consent of the other parties, except that State Street
may assign this Agreement to a successor of all or a substantial portion of its
business, or to a party controlling, controlled by, or under common control with
State Street.
b. Survival. All provisions regarding indemnification, warranty,
liability and limits thereon, and confidentiality and/or protection of
proprietary rights and trade secrets shall survive the termination of this
Agreement.
c. Entire Agreement. This Agreement and the attachments hereto constitute
the entire understanding of the parties hereto with respect to the Data Access
Services and the use of the System and supersedes any and all prior or
contemporaneous representations or agreements, whether oral or written, between
the parties as such may relate to the Data Access Services or the System, and
cannot be modified or altered except in a writing duly executed by the parties.
This
7
<PAGE>
Agreement is not intended to supersede or modify the duties and liabilities of
the parties hereto under the Custodian Agreement or any other agreement between
the parties hereto except to the extent that any such agreement specifically
refers to the Data Access Services or the System. No single waiver or any right
hereunder shall be deemed to be a continuing waiver.
d. Severability. If any provision or provisions of this Agreement shall
be held to be invalid, unlawful, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired.
e. Governing Law. This Agreement shall be interpreted and construed in
accordance with the internal laws of The Commonwealth of Massachusetts without
regard to the conflict of laws provisions thereof.
8
<PAGE>
IN WITNESS WHEREOF, each of the undersigned Funds severally has
caused this Agreement to be duly executed in its name and through its duly
authorized officer as of the date hereof.
STATE STREET BANK AND TRUST
COMPANY
By: /s/ Ronald E. Logue
------------------------------------
Title: Executive Vice President
------------------------------------
Date:
------------------------------------
EACH FUND LISTED ON APPENDIX A
By: /s/ Joseph W. Canavan
-----------------------------------
Title: Senior Vice President
-----------------------------------
Date: June 5, 1998
-----------------------------------
<PAGE>
APPENDIX A
Funds (each a series of investment company named in bold)
- -----
State Street Research Capital Trust
State Street Research Capital Fund
State Street Research Emerging Growth Fund
(formerly: State Street Research Small Capitalization Growth
Fund)
State Street Research Aurora Fund
(formerly: State Street Research Small Capitalization Value Fund)
State Street Research Equity Trust
State Street Research Equity Investment Fund
State Street Research Alpha Fund
(formerly: State Street Research Equity Income Fund)
State Street Research Global Resources Fund
State Street Research Athletes Fund
State Street Research Exchange Trust
State Street Research Exchange Fund
State Street Research Financial Trust
State Street Research Government Income Fund
State Street Research Strategic Portfolios: Aggressive
State Street Research Strategic Portfolios: Conservative
State Street Research Strategic Portfolios: Moderate
State Street Research Growth Trust
State Street Research Growth Fund
State Street Research Income Trust
State Street Research High Income Fund
State Street Research Managed Assets
State Street Research Master Investment Trust
State Street Research Investment Trust
State Street Research Money Market Trust
State Street Research Money Market Fund
State Street Research Tax-Exempt Trust
State Street Research Tax-Exempt Fund
State Street Research New York Tax-Free Fund
State Street Research Securities Trust
State Street Research Intermediate Bond Fund
State Street Research Strategic Income Fund
State Street Research Legacy Fund
State Street Research Galileo Fund
State Street Research Portfolios, Inc.
State Street Research International Equity Fund
Ap. A-1
<PAGE>
Status of Funds Covered By This Agreement
- -----------------------------------------
(a) Each Fund shall be regarded for all purposes as separate from any of the
other Funds. Each Fund shall be responsible for only its own transactions.
No Fund shall participate in, or effect any transaction in connection with,
any joint enterprise or other joint arrangement or profit-sharing plan.
(b) The use of this single document to memorialize the separate arrangements
under the Agreement for each of the Funds is understood to be for clerical
convenience only and shall not constitute any basis for joining the Funds
in any respect.
(c) Each trust listed above is a Massachusetts business trust. The Master Trust
Agreement of each Massachusetts business trust of which a Fund is a series,
as the same may be amended from time to time, is on file with the Secretary
of State for the Commonwealth of Massachusetts. It is expressly agreed that
the execution and delivery of this Agreement and the obligations of each
trust hereunder shall not be binding upon any of the trustees,
shareholders, nominees, officers, agents or employees of the relevant
trust as individuals, or personally, but shall bind only the trust property
of the trust. The Master Trust Agreement of each trust provides, and it is
expressly agreed, that each Fund of the trust shall be solely and
exclusively responsible for the payment of its debts, liabilities and
obligations, and that no other Funds shall be responsible for same.
Ap. A-2
<PAGE>
ATTACHMENT A
Multicurrency HORIZON(R) Accounting System
System Product Description
I. The Multicurrency HORIZON(R) Accounting System is designed to provide lot
level portfolio and general ledger accounting for SEC and ERISA type
requirements and includes the following services: 1) recording of general ledger
entries; 2) calculation of daily income and expense; 3) reconciliation of daily
activity with the trial balance, and 4) appropriate automated feeding mechanisms
to (i) domestic and international settlement systems, (ii) daily, weekly and
monthly evaluation services, (iii) portfolio performance and analytic services,
(iv) Fund's internal computing systems and (v) various State Street provided
information services products.
II. GlobalQuest(R) GlobalQuest(R) is designed to provide Fund access to the
following information maintained on The Multicurrency HORIZON(R)
Accounting System: 1) cash transactions and balances; 2) purchases and
sales; 3) income receivables; 4) tax refund receivables; 5) daily
priced positions; 6) open trades; 7) settlement status; 8) foreign
exchange transactions; 9) trade history; and 10) daily, weekly and
monthly evaluation services.
III. HORIZON(R) Gateway. HORIZON(R) Gateway provides customers with the ability
to (i) generate reports using information maintained on the Multicurrency
HORIZON(R) Accounting System which may be viewed or printed at the customer's
location; (ii) extract and download data from the Multicurrency HORIZON(R)
Accounting System; and (iii) access previous day and historical data. The
following information which may be accessed for these purposes: 1) holdings; 2)
holdings pricing; 3) transactions, 4) open trades; 5) income; 6) general ledger
and 7) cash.
IV. SaFiRe(SM). SaFiRe(SM) is designed to provide the customer with the ability
to prepare its own financial reports by permitting the customer to access
customer information maintained on the Multicurrency HORIZON(R) Accounting
System, to organize such information in a flexible reporting format and to have
such reports printed on the customer's desktop or by its printing provider.
V. State Street Interchange. State Street Interchange is an open information
delivery architecture wherein proprietary communication products, data formats
and workstation tools are replaced by industry standards and is designed to
enable the connection of State Street's network to customer networks, thereby
facilitating the sharing of information.
<PAGE>
ATTACHMENT B
Designated Configuration
[Designated Configuration Graphic]
<PAGE>
ATTACHMENT C
Undertaking
The undersigned understands that in the course of its employment as
Investment Advisor to each fund listed on Appendix A (individually a, "Fund",
collectively, the "Funds") it will have access to State Street Bank and Trust
Company's ("State Street") Multicurrency HORIZON Accounting System and other
information systems (collectively, the "System").
The undersigned acknowledges that the System and the databases, computer
programs, screen formats, report formats, interactive design techniques,
documentation, and other information made available to the Undersigned by State
Street as part of the Data Access Services provided to the Fund and through the
use of the System constitute copyrighted, trade secret, or other proprietary
information of substantial value to State Street. Any and all such information
provided by State Street to the Undersigned shall be deemed proprietary and
confidential information of State Street (hereinafter "Proprietary
Information"). The Undersigned agrees that it will hold such Proprietary
Information in confidence and secure and protect it in a manner consistent with
its own procedures for the protection of its own confidential information and to
take appropriate action by instruction or agreement with its employees who are
permitted access to the Proprietary Information to satisfy its obligations
hereunder.
The Undersigned will not attempt to intercept data, gain access to data
in transmission, or attempt entry into any system or files for which it is not
authorized. It will not intentionally adversely affect the integrity of the
System through the introduction of unauthorized code or data, or through
unauthorized deletion.
Upon notice by State Street for any reason, any right to use the System
and access to the Data Access Services shall terminate and the Undersigned shall
immediately cease use of the System and the Data Access Services. Immediately
upon notice by State Street for any reason, the Undersigned shall return to
State Street all copies of documentation and other Proprietary Information in
its possession.
STATE STREET RESEARCH &
MANAGEMENT COMPANY
By: /s/ Darman A. Wing
---------------------------------------
Title: Senior Vice President
---------------------------------------
Date: June 4, 1998
---------------------------------------
<PAGE>
ATTACHMENT D
Support
During the term of this Agreement, State Street agrees to provide the
following on-going support services:
a. Telephone Support. The Fund Designated Persons may contact State
Street's HORIZON(R) Help Desk and Fund Assistance Center between the hours of 8
a.m. and 6 p.m. (Eastern time) on all business days for the purpose of obtaining
answers to questions about the use of the System, or to report apparent problems
with the System. From time to time, the Fund shall provide to State Street a
list of persons, not to exceed five in number, who shall be permitted to contact
State Street for assistance (such persons being referred to as "the Fund
Designated Persons").
b. Technical Support. State Street will provide technical support to
assist the Fund in using the System and the Data Access Services. The total
amount of technical support provided by State Street shall not exceed 10
resource days per year. State Street shall provide such additional technical
support as is expressly set forth in the fee schedule in effect from time to
time between the parties (the "Fee Schedule"). Technical support, including
during installation and testing, is subject to the fees and other terms set
forth in the Fee Schedule.
c. Maintenance Support. State Street shall use commercially reasonable
efforts to correct system functions that do not work according to the System
Product Description as set forth on Attachment A in priority order in the next
scheduled delivery release or otherwise as soon as is practicable.
d. System Enhancements. State Street will provide to the Fund any
enhancements to the System developed by State Street and made a part of the
System; provided that, sixty (60) days prior to installing any such enhancement,
State Street shall notify the Fund and shall offer the Fund reasonable training
on the enhancement. Charges for system enhancements shall be as provided in the
Fee Schedule. State Street retains the right to charge for related systems or
products that may be developed and separately made available for use other than
through the System.
e. Custom Modifications. In the event the Fund desires custom
modifications in connection with its use of the System, the Fund shall make a
written request to State Street providing specifications for the desired
modification. Any custom modifications may be undertaken by State Street in its
sole discretion in accordance with the Fee Schedule.
f. Limitation on Support. State Street shall have no obligation to
support the Fund's use of the System: (1) for use on any computer equipment or
telecommunication facilities which does not conform to the Designated
Configuration or (ii) in the event the Fund has modified the System in breach of
this Agreement.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Post-Effective Amendment No. 11
to the Registration Statement of State Street Research Strategic Income Fund,
State Street Research Legacy Fund and State Street Research Galileo Fund (each a
series of State Street Research Securities Trust) on Form N-1A (File No.
33-7462) of our reports dated June 4, 1999 on our audits of the financial
statements and financial highlights of the Funds, which reports are incorporated
by reference in the Post-Effective Amendment to the Registration Statement. We
also consent to the reference to our Firm under the captions "Financial
Highlights" in each Prospectus and "Independent Accountants" in the Statement of
Additional Information for the aforementioned Fund.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 31, 1999
STATE STREET RESEARCH SECURITIES TRUST
RULE 12b-1 PLAN FOR DISTRIBUTION OF SHARES
WHEREAS, State Street Research Securities Trust, an unincorporated
association of the type commonly known as a business trust organized under the
laws of the Commonwealth of Massachusetts (the "Trust"), engages in business as
an open-end management investment company and is registered as such under the
Investment Company Act of 1940, as amended (the "Act");
WHEREAS, the Trust is authorized to (a) issue shares of beneficial
interest in separate series, with the shares of each such series representing
the interests in a separate portfolio of securities and other assets, and (b)
divide the shares within each such series into two or more classes;
WHEREAS, one such class has been designated as Class B(1) (the shares
of such class being hereinafter referred to as "Shares");
WHEREAS, the Trust has established the State Street Research Strategic
Income Fund, the State Street Research Legacy Fund, and the State Street
Research Galileo Fund (each such portfolio, together with all other series made
subject to this Rule 12b-1 Plan (this "Plan"), being referred to herein
individually as a "Series" and collectively as the "Series");
WHEREAS, the Trust may be deemed a distributor of the Shares within the
meaning of Rule 12b-1 under the Act, and desires to adopt this Plan, and has
adopted a related Distribution Agreement (the "Agreement") with State Street
Research Investment Services, Inc., the Trust's principal underwriter (the
"Distributor") pursuant to such Rule; and
WHEREAS, the Board of Trustees as a whole, and the Trustees who are not
interested persons (as defined in the Act) of the Trust and who have no direct
or indirect financial interest in the operation of this Plan or the Agreement
and any agreements relating to it (the "Qualified Trustees"), having determined,
in the exercise of their reasonable business judgment and in light of their
fiduciary duties under state law and under Section 36(a) and (b) of the Act,
that there is a reasonable likelihood that this Plan and the Agreement will
benefit each Series and its shareholders, have accordingly approved this Plan
and the Agreement by votes cast in person at a meeting called for the purpose of
voting on this Plan and the Agreement and any agreements related thereto.
NOW, THEREFORE, the Trust hereby adopts this Plan in accordance with
Rule 12b-1 under the Act, on the following terms and conditions:
1
<PAGE>
SECTION 1. PAYMENTS TO THE DISTRIBUTOR
(a) Service Fees. The Trust shall pay the Distributor a service fee at
the end of each month at the annual rate of 0.25% of average daily net assets
attributable to the Shares of each Series to compensate the Distributor and any
securities firms or other third parties who render personal services to and/or
maintain shareholder accounts for the holders of Shares of such Series.
(b) Distribution Fees. The Trust shall pay the Distributor a
distribution fee under the Plan at the end of each month at the annual rate of
0.75% of average daily net assets attributable to the Shares of each Series to
compensate the Distributor for services provided and expenses incurred by it in
connection with sales, promotional and marketing activities relating to the
Shares of such Series.
Payment of the distribution fee described in this Paragraph 1(b) shall
be subject to any limitation set forth in any applicable regulation of the
National Association of Securities Dealers, Inc.
SECTION 2. PAYMENTS FROM OTHER SOURCES
To the extent that any payments made by the Trust to the Distributor or
State Street Research & Management Company (the "Adviser"), including payment of
investment management fees, should be deemed to be an indirect financing of any
activity primarily resulting in the sale of Shares within the scope of Rule
12b-1 under the Act, then such payments shall be deemed to be authorized by this
Plan.
SECTION 3. TERM AND TERMINATION
(a) Effectiveness. This Plan shall become effective with respect to
each Series as of the later of (i) the date on which a Registration Statement
with respect to Shares of such Series becomes effective under the Securities Act
of 1933, as amended, or (ii) the date on which such Series commences offering
its Shares to the public. This Plan shall continue in effect with respect to
each Series until one (1) year from the date of such effectiveness, unless the
continuation of this Plan shall have been approved with respect to the Series in
accordance with the provisions of Section 3(b) hereof.
(b) Continuation. This Plan and the Agreement shall continue in effect
with respect to each Series thereof subsequent to the initial term specified in
Section 3(a) for so long as such continuance is specifically approved at least
annually by votes of a majority of both (i) the Board of Trustees of the Trust
and (ii) the Qualified Trustees, cast in person at a meeting called for the
purpose of voting on this Plan, subject to any shareholder approval requirements
existing under applicable law.
2
<PAGE>
(c) Termination.
(i) This Plan may be terminated at any time with respect to
the Trust or any Series thereof, as the case may be, by vote of a
majority of the Qualified Trustees, or by vote of a majority of the
outstanding voting securities of the Trust or that Series, as the case
may be. This Plan may remain in effect with respect to a Series thereof
even if it has been terminated in accordance with this Section 3(c)
with respect to such Series or one or more other Series of the Trust.
(ii) The Agreement may be terminated at any time, without
penalty, with respect to the Trust or any Series, as the case may be,
by vote of a majority of the Qualified Trustees or by vote of a
majority of the outstanding voting securities of the Trust or that
Series, as the case may be, on sixty (60) days' written notice to the
Distributor. In addition, the Agreement provides for automatic
termination in the event of its assignment.
SECTION 4. AMENDMENTS
This Plan may be amended with respect to the Trust or a Series thereof
in the manner provided for annual renewal in Section 3(b) hereof; provided,
however, that this Plan may not be amended to increase materially the amount of
distribution expenditures provided for in Section 1 hereof unless such amendment
is approved by a vote of a majority of the outstanding voting securities of each
Series thereof with respect to which a material increase in the amount of
distribution expenditures is proposed.
SECTION 5. INDEPENDENT TRUSTEES
While this Plan is in effect with respect to any Series, the selection
and nomination of Trustees who are not interested persons (as defined in the
Act) of the Trust shall be committed to the discretion of the Trustees who are
not interested persons.
SECTION 6. QUARTERLY REPORTS
The Treasurer of the Trust and the Treasurer of the Distributor shall
provide to the Trustees of the Trust and the Trustees shall review, at least
quarterly, a written report of the amounts expended for distribution pursuant to
this Plan and the purposes for which such expenditures were made.
3
<PAGE>
SECTION 7. RECORD KEEPING
The Trust shall preserve copies of this Plan, the Agreement and any
related agreements and all reports made pursuant to Section 6 hereof, for a
period of not less than six (6) years from the date of this Plan, and the
Agreement, the agreements or such reports, as the case may be, for the first two
(2) years in an easily accessible place.
SECTION 8. LIMITATION OF LIABILITY
The term "State Street Research Securities Trust" means and refers to
the Trustees of the Trust from time to time serving under the Master Trust
Agreement dated January 25, 1994 (the "Master Trust Agreement") as the same may
subsequently thereto have been, or subsequently hereto be, amended. It is
expressly agreed that the obligations of the Trust hereunder shall not be
binding upon any of the Trustees, shareholders, nominees, officers, agents or
employees of the Trust, personally, but bind only the trust property of the
Trust, as provided in the Master Trust Agreement. This Plan and its execution
and delivery have been authorized by the Trustees of the Trust and signed by an
authorized officer of the Trust, acting as such, and neither such authorization
by such Trustees nor such execution and delivery by such officer shall be deemed
to have been made by any of them individually or to impose any liability on any
of them personally, but shall bind only the trust property of the Trust as
provided in the Master Trust Agreement. The Master Trust Agreement further
provides, and it is expressly agreed, that each Series shall be solely and
exclusively responsible for the payment of its debts, liabilities and
obligations and that no other Series shall be responsible or liable for the
same.
4
<PAGE>
IN WITNESS WHEREOF, the Trust and the Distributor have executed this
Rule 12b-1 Plan on the day and year set forth below in Boston, Massachusetts.
ATTEST: STATE STREET RESEARCH
SECURITIES TRUST
/s/ Darman A. Wing By: /s/ Gerard P. Maus
- ----------------------------- -------------------------------
Gerard P. Maus
Treasurer
ATTEST: STATE STREET RESEARCH
INVESTMENT SERVICES, INC.
/s/ Darman A. Wing By: /s/ C. Troy Shaver, Jr.
- ----------------------------- --------------------------------
C. Troy Shaver, Jr.
President
Date: January 1, 1999
POWER OF ATTORNEY
The undersigned, a Trustee of State Street Research Securities Trust
("Trust"), a Massachusetts business trust, hereby constitutes and appoints
Francis J. McNamara, III and Darman A. Wing as the true and lawful attorneys of
the undersigned, with full power to each of them alone to sign for the
undersigned, in the name and in the capacity of the undersigned indicated below,
any Registration Statements and any and all amendments thereto of the Trust
filed with the Securities and Exchange Commission and generally to do all such
things in the name and in the indicated capacity of the undersigned as are
required to enable the Trust to comply with provisions of the Securities Act of
1933, as amended, and/or the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission, hereby
ratifying and confirming the signature of the undersigned as it has been and may
be signed by said attorneys to said Registration Statements, and any and all
amendments thereto.
IN WITNESS WHEREOF, executed the 31st day of August, 1999.
Signature Capacity
/s/ Susan M. Phillips Trustee
- ---------------------
Susan M. Phillips
POWER OF ATTORNEY
The undersigned, a Trustee of State Street Research Securities Trust
("Trust"), a Massachusetts business trust, hereby constitutes and appoints
Francis J. McNamara, III and Darman A. Wing as the true and lawful attorneys of
the undersigned, with full power to each of them alone to sign for the
undersigned, in the name and in the capacity of the undersigned indicated below,
any Registration Statements and any and all amendments thereto of the Trust
filed with the Securities and Exchange Commission and generally to do all such
things in the name and in the indicated capacity of the undersigned as are
required to enable the Trust to comply with provisions of the Securities Act of
1933, as amended, and/or the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission, hereby
ratifying and confirming the signature of the undersigned as it has been and may
be signed by said attorneys to said Registration Statements, and any and all
amendments thereto.
IN WITNESS WHEREOF, executed the 31st day of August, 1999.
Signature Capacity
/s/ Bruce R. Bond
- ----------------------- Trustee
Bruce R. Bond
Certificate of Resolution
I, the undersigned Darman A. Wing, hereby certify that I am Assistant
Secretary of State Street Research Securities Trust (the "Trust"), a
Massachusetts business trust duly authorized and validly existing under
Massachusetts law, and that the following is a true, correct and complete
statement of a vote duly adopted by the Trustees of said Trust on May 5, 1995:
"VOTED: That Francis J. McNamara, III and Darman A. Wing be, and each
hereby is, authorized and empowered, for and on behalf of the
Trust, its principal financial and accounting officer, and in
their name, to execute, and file a Power of A ttorney relating
to, the Trust's Registration Statements under the Investment
Company Act of 1940 and/or the Securities Act of 1933, and
amendments thereto, the execution and delivery of such Power of
Attorney, Registration Statements and amendments thereto, to
constitute conclusive proof of such authorization."
I further certify that said vote has not been amended or revoked and
that the same is now in full force and effect.
IN WITNESS WHEREOF, I have hereunto set my hand on this 31st day of
August, 1999.
/s/ Darman A. Wing
-----------------------
Assistant Secretary
STATE STREET RESEARCH SECURITIES TRUST
Addendum
to
First Amended and Restated Multiple Class Expense Allocation Plan
January 1, 1999
WHEREAS, State Street Research Securities Trust (the "Trust") has
adopted the First Amended and Restated Multiple Class Expense Allocation Plan
dated May 8, 1996 (the "Plan") in accordance with Rule 18f-3 under the
Investment Company Act of 1940, as amended, pursuant to which the Trust, for
each of its portfolio series (each a "Series") and separate classes thereof, may
issue multiple classes of shares representing interests in the same portfolio of
securities, assess a contingent deferred sales charge (the "CDSC") on certain
redemptions of shares and waive the CDSC in certain cases;
WHEREAS, the Trust currently has established one or more Series, and
each such series has established four classes of shares: Class A, Class B, Class
C (formerly Class D) and Class S (formerly Class C), all of which are subject to
the Plan;
WHEREAS, the Trust has established an additional class of shares, Class
B(1), for each Series, and such shares are to be made subject to the Plan;
NOW, THEREFORE, the Trust hereby adopts this Addendum pursuant to the
current terms of the Plan:
1. Class B(1) shares of each Series are made subject to the Plan pursuant to
Section 4(b) of the Plan.
2. All class differences, differences in distribution and shareholder services
and the allocation of expenses between Class B(1) shares and the other
authorized classes of shares of each Series shall be as described in the current
prospectus for such class and such Series or as otherwise described in the Plan.
